OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” from “a-“ of Florida Family Insurance Company (FFIC) and its subsidiary, Florida Family Home Insurance Company (FFHIC), which together make up the two pool members of Florida Family Group (Florida Family). The outlook of the FSR has been revised to stable from negative while the outlook for the Long-Term ICR remains negative. Both companies are domiciled in Bonita Springs, FL.
These Credit Ratings (ratings) reflect Florida Family’s balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The downgrades reflect deterioration in underwriting results in recent years that has resulted in performance metrics no longer supportive of a strong assessment. Florida Family’s underwriting performance has been impacted negatively by hurricanes, a challenging Florida insurance market, which includes increases in the frequency and severity of water-related claims, and more recently, adverse loss reserve development. Furthermore, before a slight uptick in 2019, premiums had been declining due to a more competitive environment relative to the group’s strategic business platform of selectively offering wind and ex-wind products within Florida. Underlying results, excluding the net impact of catastrophes, have been considered by AM Best. Florida Family has implemented a number of actions to improve performance, including rate increases, nonrenewal of undesirable risks, the closure of new business in specific areas of Florida and the effective management of assignment of benefits issues. The group recently launched a new homeowners insurance product, which has produced modest growth in the historical footprint and incremental writings in territories previously closed off to wind business.
The negative outlook on the Long-Term ICR reflects recent deterioration in risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). At last review, the group had reported a BCAR that was commensurate of an assessment of very strong; in the current review, the group’s BCAR dropped materially to a level assessed as strong. Further pressuring balance sheet strength is elevated reinsurance dependency and above-average net leverage, as compared with the personal property composite. The BCAR deterioration and view of risk-adjusted capitalization reflects higher gross probable maximum losses (PMLs) that are a product of the group’s expansion of its new homeowners product paired with less ground-up catastrophe reinsurance coverage due to a lower level of coverage being provided by the Florida Hurricane Catastrophe Fund, which collectively result in higher net PMLs across value-at-risk intervals. Furthermore, while Florida Family historically has reported favorable loss reserve development, the past few years have trended adversely. Management has responded with action plans to prevent future development and true-up current reserves.
The business profile assessment reflects Florida Family’s limited operating territory within a hurricane-prone state. Severe weather events continue to be Florida Family’s primary risk, which is a focal point in the group’s ERM program. The ERM program, which is considered appropriate, includes a comprehensive catastrophe reinsurance program, strategic placement of coverage and strict underwriting guidelines. The program is documented formally, with policies, procedures and risk tolerances clearly stated.
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