OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has removed from under review with negative implications and downgraded the Financial Strength Rating to B- (Fair) from B (Fair) and the Long-Term Issuer Credit Rating to “bb-” (Fair) from “bb” (Fair) of Southern General Insurance Company (Southern General) (Marietta, GA). The outlook assigned to these Credit Ratings (ratings) is negative.
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 rating downgrades reflect weakening of Southern General’s balance sheet strength due to the substantial deterioration in the company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). The meaningful reduction in risk-adjusted capitalization was due to a large loss in the company’s surplus of nearly 40% at year-end 2022 and approximately 12% as of June 30, 2023, resulting from substantial underwriting losses. Southern General’s underwriting results were impacted by an increase in inflation and corresponding increase in loss costs across the segment.
The negative outlooks reflect the decline in Southern General’s overall risk-adjusted capitalization and an increase in underwriting leverage metrics due to the decline in surplus that have resulted from continued underwriting volatility. Despite management’s effort related to refining its book of business, volatility has persisted and caused deterioration on a number of Southern General’s balance sheet strength metrics. The company recently entered into a quota share reinsurance agreement with an unaffiliated third-party to reduce its net leverage. While this agreement should reduce the company’s overall underwriting leverage, continued deterioration in risk-adjusted capitalization will likely lead to additional negative rating action.
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