AM Best Downgrades Credit Ratings of Alabama Municipal Insurance Corporation

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” (Good) from “a-” (Excellent) of Alabama Municipal Insurance Corporation (AMIC) (Montgomery, AL). The outlook of the Long-Term ICR has been revised to negative from stable, while the outlook of the FSR is stable.

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

The downgrade of the ratings reflects material deterioration in AMIC’s underwriting results over consecutive periods that significantly deviate from historic norms. Volatility in overall operating performance has primarily been impacted by an increase in property losses, from both inflation and weather events, coupled with continued challenges within the law enforcement liability segment. Furthermore, adjustments to the company’s annual aggregate deductible programs led to greater retained property losses in recent years. AMIC’s law enforcement liability segment has been impacted by claims going to federal court, which prevents the application of state tort caps and comes with greater defense costs, as well as social trends pertaining to law enforcement. AMIC management responded with pronounced rate initiatives, educational awareness in the judicial system, officer training and more refined reviews of insureds; however, initiatives have yet to gain traction as illustrated by results that no longer outpace the composite averages.

The negative outlook on the company’s Long-Term ICR reflects ongoing operating volatility and pressure on its balance sheet strength associated with continued erosion in the capital position and loss reserve development trends. Despite surplus declines in recent years, risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), along with underwriting leverage, reserve leverage, and liquidity metrics, remain in favorable positions. The company benefits from a strong presence in its niche market utilizing a well-established distribution network leveraging both internal and external channels. AMIC’s ERM is assessed as appropriate, reflective of a companywide approach to managing risk with a distinct set of risk categories. Risk management is further enhanced by a robust reinsurance program.

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