AM Best Revises Outlooks to Negative for Discovery Insurance Company

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-” (Good) of Discovery Insurance Company (Discovery) (Kinston, NC).

The Credit Ratings (ratings) reflect Discovery’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).

The negative outlooks reflect the decline in Discovery’s operating performance and earnings over the past year, which has led to a decline in policyholders’ surplus. This decline is due primarily to deteriorating underwriting results as a result of declining written and earned premiums due to pricing pressures from increased competition of market entrants into the non-standard automobile insurance marketplace in North Carolina. Underwriting results have been impacted negatively by the challenges in the auto market, which include supply chain issues for parts, labor shortages and significantly elevated used car prices. While management plans to take various pricing actions to return to profitable underwriting performance, it is uncertain whether or not these actions will be sufficient to return Discovery to its historic operating profitability over the intermediate term. AM Best will continue to monitor the execution of management’s plans and their impact on alleviating pressure on Discovery’s operating performance.

Discovery’s strong balance sheet continues to be supported by its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), stable loss reserving trends and an appropriate reinsurance program. The adequate operating performance assessment reflects key operating ratios, which are generally line with AM Best’s non-standard automobile composite on a five- and 10-year average basis. The business profile assessment reflects the company’s concentration of non-standard automobile insurance business in North Carolina. The marginal ERM reflects the company’s evolving ERM practices, which have less capability to manage pricing risk adequately in a timely manner from recent increased competitive pressures.

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