OLDWICK, N.J.–(BUSINESS WIRE)–A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb” of Michigan Commercial Insurance Mutual (MCIM) (Lansing, MI).
The rating actions reflect MCIM’s poor underwriting and operating performance in recent years, which led to a rather significant decline in policyholder surplus and risk-adjusted capitalization. Furthermore, the company maintains a business concentration risk, operating as a workers’ compensation insurer with limited geographic spread that exposes operations to changes in the economic, competitive and regulatory environments, which has been evidenced by loss of construction-related premiums in Michigan and the accumulation of state-mandated rate decreases in Florida. Despite management’s initiatives to diversify outside of Michigan and Florida and into lower hazard classes of business, MCIM’s underwriting performance remains weak. This is due to competitive market conditions in the workers’ compensation line of business, a weak macroeconomic environment, a prolonged period of rate decreases, as well as the costs associated with MCIM’s expansion initiatives that have increased the underwriting expense ratio to a level well in excess of its peer composite. While management has implemented initiatives intended to improve underwriting results, the company’s operating results will continue to be challenged over the near term, given continued challenging market conditions and the low interest rate environment.
The ratings reflect MCIM’s adequate risk-adjusted capitalization and historically conservative loss reserving standards, which have resulted in favorable loss reserve development on prior accident years. The ratings also consider the equity of the residual trust managed by MCIM and that the company is the legal beneficiary of the trust. The equity in the trust will revert to MCIM upon satisfaction of all remaining claims obligations of the trust.
Factors that could trigger negative rating actions include a decline in MCIM’s policyholder surplus and risk-adjusted capitalization that is beyond A.M. Best’s expectations and any material deviation from the company’s submitted financial projections.