AM Best Revises Outlooks to Negative for Members of Columbia Lloyds Companies

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Columbia Lloyds Insurance Company and MDOW Insurance Company, which are collectively referred to as Columbia Lloyds Companies (Columbia Lloyds). Both companies are domiciled in Houston, TX.

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

The revised outlooks to negative from stable reflect continued deviation from Columbia Lloyds’ historically strong operating performance in more recent calendar years. Most notably, results in 2023 have been influenced by the impact of the quota share reduction for two treaties and material storm losses accumulating throughout the year, with more losses retained as a result of the quota share adjustment. Through the first nine months of 2023, the group reported a combined ratio of 165.3 with underwriting losses of $13.9 million driving a surplus decline of $9.5 million (21.8%). These results were driven by net aggregate storm losses and influenced by the treatment of premium and commissions from a reduction in the quota share treaties. The outlooks further consider the potential for shifting enterprise risk mitigation strategies, via the changes in reinsurance structures, to no longer insulate the group’s capital effectively.

The overall very strong balance sheet strength reflects the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), although weakened from prior years following capital erosion in 2022 and continuing through third-quarter 2023. Additional factors include a diversified investment portfolio anchored in cash and short-term investments with solid liquidity. The limited business profile is marked by Columbia Lloyds’ geographic concentration primarily in Texas and Oklahoma, which exposes earnings and surplus to weather-related events, regulatory risk, and competitive market pressures. However, the level of concentration has declined over the most recent five-year period based on management’s diversification efforts and agency management initiatives. AM Best considers the ERM program appropriate for the group’s risk profile and includes active monitoring of key risks and prudent reinsurance protection.

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