AM Best Places Credit Ratings of Stillwater Insurance Group’s Members Under Review With Negative Implications

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has placed under review with negative implications the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” (Excellent) of Stillwater Insurance Company (SIC) (Santa Barbara, CA) and its wholly owned subsidiary, Stillwater Property and Casualty Insurance Company (SPAC) (Jericho, NY). These companies are collectively known as Stillwater Insurance Group (Stillwater). Concurrently, AM Best has placed under review with negative implications the Long-Term ICR of “bbb-­” (Good) of WT Holdings, Inc. (Memphis, TN). Stillwater is ultimately owned by WT Holdings, Inc.

The under review with negative implications status is based on the significant decline in Stillwater’s surplus position at year-end 2022, primarily driven by substantial unrealized capital and net underwriting losses. These unrealized capital losses were largely driven by the equity markets volatility impacting Stillwater due to its high equity exposure. The company’s net underwriting results stemmed from multiple fire losses, weather-related events, as well as rapid and atypical increases in inflation that have plagued the industry as a whole. Stillwater’s homeowners’ line of business accounts for about 65% of its premium volume and has been impacted by increasing costs of material and labor along with supply chain constraints. The company’s auto line of business results also have been impacted by price increases for new and used vehicles. In addition, higher rental rates combined with longer average repair times due to parts shortages, particularly microchips, have contributed to higher loss ratios.

In an effort to address the surplus decline that directly impacts Stillwater’s risk-adjusted capitalization, management is currently working on a series of action plans to replenish capital, increase overall risk-adjusted capitalization and improve balance sheet metrics. The plans consider several options including but not limited to quota share reinsurance for the property book of business, potential capital infusion from its parent, increased top layer catastrophe coverage and a further reduction of common stock holdings in the investment portfolio to remove market risks. In addition, Stillwater is exploring other capital initiatives. WT Holdings, Inc. has indicated a willingness and ability to make a capital contribution; the timing and amount are being discussed.

The ratings will remain under review until AM Best can fully analyze the impact of management's plan. If these actions do not sufficiently improve balance sheet metrics and overall risk-adjusted capitalization, the ratings will most likely be downgraded.

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