AM Best Removes From Under Review With Developing Implications and Affirms Credit Ratings of Civil Service Employees Insurance Company and CSE Safeguard Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Ratings of “bbb-” (Good) of Civil Service Employees Insurance Company and CSE Safeguard Insurance Company, which together comprise CSE Insurance Group (CSE Group) (domiciled in Walnut Creek, CA). The outlook assigned to these Credit Ratings (ratings) is negative.

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

The ratings also reflect AM Best’s analysis of the group’s business plans with regard to reunderwriting its book of business, with a strong focus on reserving, product placement, pricing, concentrations and reinsurance, as well as the strategic plans of the existing parent, Société de Groupe d’Assurance Mutuelle Covéa (Covéa), for CSE Group, following further discussions with company management.

CSE Group’s balance sheet assessment reflects its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and high-quality investment portfolio, which are offset partially by surplus declines, inconsistent reserve development and negative cash flows in recent periods. The group’s operating performance has been impacted by underwriting losses and volatility over the most recent five-year period, resulting in net reported losses in most years. While management has implemented many corrective actions to improve underwriting performance, results remain marginal with losses reported in 2022 and through the first quarter of 2023 following winter storms, an increase in large losses and inflationary impacts, as well as delays in regulatory approval of needed rate increases. In addition, reinsurance market pricing has offset gains made in reducing the group’s exposure to catastrophe losses.

CSE Group’s limited business profile reflects significant geographic concentration in California, exposing the group to regulatory, legislative and judicial challenges, as well as consequential weather events, which continue to impact operating performance results negatively. The group’s marginal ERM assessment is reflected in deterioration of results, despite some improvements made in the overall book of business in previous years. While the group’s management team continues to take corrective actions to address and strengthen risk management capabilities, operating performance results have yet to benefit from these objectives.

Additionally, following the execution of an agreement to sell CSE (although mutually terminated by both parties at a later date), continued support from the parent is not expected.

The negative outlooks reflect AM Best’s expectation of continued pressure on the group’s balance sheet strength fundamentals driven by lack of earnings capacity. While the group has undertaken initiatives to improve its underwriting performance and capital position, continued volatility and deteriorating balance sheet metrics are a concern, especially considering the significant challenges posed by persisting market pressures and the prolonged inability to incorporate profitable pricing into its product offerings.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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