AM Best Downgrades Credit Ratings of McMillan-Warner Mutual Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating to B- (Fair) from B+ (Good) and the Long-Term Issuer Credit Rating to “bb-” (Fair) from “bbb-” (Good) of McMillan-Warner Mutual Insurance Company (MWM) (Marshfield, WI). The outlook of these Credit Ratings (ratings) is negative.

The ratings reflect MWM’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 the considerable weakening in MWM’s key balance sheet strength metrics as well as its overall level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR) through Sept. 30, 2023. Since year-end 2022, policyholders’ surplus has fallen sharply influenced by ongoing volatility on the underwriting side due to catastrophe losses as well as unrealized capital losses. Further, the company’s surplus was overstated on its 2022 annual statement filing as a result of an error related to an aggregate reinsurance recovery. Over the most recent year, net premiums have risen significantly due to the removal of a personal automobile quota share, causing underwriting leverage measures to spike and exceed the personal property industry composite average by a wide margin. Thus, the company’s balance sheet strength assessment was downgraded to adequate from strong.

While management continues to address the deterioration through rate increases, cancelling or non-renewing policies given its tighter underwriting guidelines, the negative outlook on the balance sheet strength building block considers the uncertainty in the overall effectiveness of these actions. In the event of additional deterioration in policyholders’ surplus or overall risk-adjusted capitalization, the ratings could be further downgraded.

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