OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb” (Fair) from “bb+” (Fair) and affirmed the Financial Strength Rating of B (Fair) of Southern General Insurance Company (Southern General) (Marietta, GA). Concurrently, AM Best has placed these Credit Rating (ratings) under review with negative implications.
The ratings reflect Southern General’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.
The downgrade of the Long-Term ICR reflects the revision of Southern General’s balance sheet strength assessment to adequate from strong, due to the significant deterioration in the company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). The sizable decline in risk-adjusted capitalization was due to a substantial loss in the company’s policyholders’ surplus of nearly 40% at year-end 2022, resulting from large underwriting losses and to a lesser extent unrealized capital losses. The company’s underwriting results were impacted by an increase in inflation and corresponding increased loss costs across the segment.
The under review status reflects the potential for stabilization in the company’s balance sheet strength assessment as it is currently reviewing strategic options with the goal of reducing underwriting leverage metrics. While this may ultimately result in improved risk-adjusted capitalization relative to Southern General’s year-end 2022 financials, the ultimate impact on the rating is uncertain given the execution risk in implementing the stabilization plan in a timely fashion, as well as finalizing terms and conditions. In the absence of more stable underwriting leverage metrics, the balance sheet strength assessment and in turn, the rating will likely be downgraded further.
The ratings will remain under review until the completion of the capital plan and AM Best’s evaluation of the full impact of these efforts on Southern General’s risk-adjusted capitalization.
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