AM Best Downgrades Credit Ratings of Star Mutual Risk Retention Group, Inc.

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 Star Mutual Risk Retention Group, Inc. (Star Mutual) (Knoxville, TN). The outlook of these Credit Ratings (ratings) is negative.

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

The rating action reflects continued misalignment between Star Mutual's risk appetite and its capital position. Premium volume grew approximately 64% in 2025 following 156% growth in 2024, outpacing surplus accumulation and pressuring risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR). The rating also reflects the company’s adequate level of operating performance historically, along with execution risk on management's forward-looking initiatives given the recurring pattern of premium growth exceeding projections while capital growth has fallen short.

The negative outlook reflects the material deviations observed during the 2024-2025 period from management’s earlier projections. In 2025, the combined ratio rose to the highest level in the company's operating history (albeit short), driven by higher than expected loss and expense ratios. Management has attributed a portion of this deterioration to a disruption in a federal data base in the first half of 2025 that the company relies on for underwriting and risk selection. The company’s 2024 accident year was written prior to the data disruption and coincides with the period of accelerated premium expansion. Star Mutual has shown adverse loss reserve development that emerged in 2025 and continued through the first quarter of 2026, indicating broader concerns regarding the seasoning of business written during its growth phase.

The downgrade of the ERM assessment to the marginal level reflects concerns building across multiple cycles, including observed misalignment between risk appetite and capital and divergence between projections and actual results during this period.

In recent years, Star Mutual has strengthened its underwriting framework by developing additional rating factors aimed at mitigating high-risk drivers and operators. The company continues to enhance its proprietary underwriting platform in support of its risk mitigation strategy, and AM Best acknowledges these efforts to improve risk selection and portfolio quality. Risk-adjusted capitalization remains under pressure, however, and operating performance has shown signs of deterioration. The effectiveness of these controls and their effects on performance will continue to be monitored.

Negative rating action may occur in the near term if underwriting losses persist at a level that no longer supports the adequate operating performance assessment. Negative rating actions may also occur if unexpected or material variances from projections persist. Although unlikely, positive rating action could occur if surplus growth exceeds growth in exposures to better support the book of business and results in an improvement in overall balance sheet strength metrics.

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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