OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B (Fair) from B++ (Good) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “bb+” (Fair) from “bbb” (Good) of The California Casualty Indemnity Exchange (San Mateo, CA) and its wholly owned subsidiaries: California Casualty General Insurance Company of Oregon (Portland, OR), California Casualty & Fire Insurance Company (San Mateo, CA) and California Casualty Insurance Company (Portland, OR). All of these companies comprise the California Casualty Group (California Casualty). The outlook of the FSR has been revised to stable from negative, while the outlook of the Long-Term ICRs is negative.
The Credit Ratings (ratings) reflect California Casualty’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 rating downgrades also reflect the revision of California Casualty’s balance sheet strength assessment to adequate from very strong, due to a significant deterioration of its risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). The decline in risk-adjusted capitalization to strong from strongest was due to substantial erosion of the group’s policyholders’ surplus position in 2022 and first-quarter 2023. California Casualty’s surplus declined nearly 38% in 2022, resulting largely from a downturn in operating performance due to inflationary pressures on loss costs and reserve strengthening actions occurring in its private passenger auto and homeowners’ lines primarily in fourth-quarter 2022.
Additionally, the rating downgrades reflect the revision of California Casualty’s business profile assessment to limited from neutral, due to heightened execution risk as the group undertakes strategic business initiatives to address the aforementioned deterioration in its operating performance metrics. The strategic initiatives include reducing the group’s geographic footprint to focus on a smaller number of core states and implementing various operating actions, which include rate increases and re-underwriting initiatives. This is offset partially by benefits derived from California Casualty’s extensive affiliations with various affinity trade groups that have provided it with a stable and mature policyholder base and excellent business persistency.
The continuation of the negative outlook on the Long-Term ICRs reflects AM Best’s concerns with California Casualty’s ability to achieve improved operating performance in the immediate term from its strategic business initiatives, including pricing and other actions undertaken, as well as how these factors may ultimately impact its risk-adjusted capitalization.
Negative rating actions could occur if California Casualty’s strategic initiatives fail to improve operating performance or if there were a further decline in the overall balance sheet strength assessment.
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