OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Rating to “bbb-” from “bbb” of FHM Insurance Company (FHM) (Jacksonville, FL). The outlook of these Credit Ratings (ratings) has been revised to stable from negative.
The ratings reflect FHM’s balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM). The revised outlooks to stable reflect the company’s very strong level of balance sheet strength.
The rating downgrades reflect a revision in AM Best’s assessment of the company’s ERM to marginal from appropriate. As a mono-line workers compensation writer, management continues to face significant challenges and uncertainties associated with the successful execution of the company's strategic plan and its ability to grow the business profitably. The company’s ERM framework is evolving as evidenced by the continued volatility in underwriting results and FHM’s inability to achieve its targets for profitability and capital growth in recent years. Although the pure loss ratio is comparable to the composite average, an already high expense ratio continues to be pressured by rate decreases and declining premium volume.
The company is refocusing on its core market of Florida after an unsuccessful geographic expansion into other Southeastern states. This embodies significant operational and execution risk in the highly competitive workers compensation market, with FHM primarily relying on policyholder dividends to maintain a sustainable advantage. Lastly, while the company uses predictive analytics and data driven metrics to increase efficiencies and risk selection, there is concern, given the current market dynamics and position, that the company will continue to be challenged in the achievement of its strategic objectives.
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