OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of Armed Forces Insurance Exchange (AFIE) (Leavenworth, KS).
The ratings reflect AFIE’s balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).
The outlook revisions reflect AM Best’s ongoing concerns regarding the company’s balance sheet strength and ERM assessments. In recent years, the company has lost surplus due to elevated catastrophe losses. In 2018, the company was impacted by nearly every type of natural catastrophe, including hurricane, hail, winter storm, tornado, wildfire, earthquake and volcanic eruption. As a result, policyholder surplus declined approximately 13% at year-end 2018, and during the latest five-year period, surplus levels have shown significant variation. Despite this adverse weather activity, the company has maintained the strongest level of risk-adjusted capitalization. However, the volatility in policyholder surplus and elevated underwriting leverage ratios are stressing the balance sheet strength assessment.
In recent years, management has maintained a well-designed ERM program, which incorporates the entire organization. However, in 2018, the company has experienced varying issues such as adverse reserve development and underperforming affinity partnerships. Additionally, the company continues to implement underwriting initiatives to improve profitability going forward. However, the underwriting and operating profitability continues to exhibit elevated volatility. Should the company be unable to stabilize profitability trends in the near term, it would bring into question the current appropriate ERM assessment of AFIE.
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