Oldwick, NJ -(BusinessWire)- A.M. Best Co. has assigned a financial strength rating of A- (Excellent) and issuer credit ratings of “a-” to CopperPoint Mutual Insurance Company (formerly known as the State Compensation Fund of Arizona, d/b/a SCF Arizona) and its wholly-owned subsidiaries, SCF American Insurance Co., SCF Western Insurance Co., SCF Indemnity Insurance Co., SCF General Insurance Co., SCF National Insurance Co., SCF Premier Insurance Co., and SCF Casualty Insurance Co. The companies operate through an intercompany reinsurance agreement, and are collectively referred to as CopperPoint Mutual Group (CPM). The outlook assigned to all ratings is stable.
The ratings reflect CPM’s solid risk-adjusted capitalization, improving operating performance and prominence within the Arizona workers’ compensation marketplace. CPM’s significant market share in Arizona, as well as the benefits it receives having been the state fund for 88 years prior to its privatization in 2013, should lead to improved underwriting results given its extensive data base and growing use of predictive analytic modeling tools. The ratings also acknowledge the improved operating environment in Arizona as favorable legislation has helped contain loss costs, and new government initiatives have been designed to improve the economic environment by attracting new business and improving livability.
During 2013, CPM completed its privatization as per the Arizona legislature enacting a law to privatize the fund. In anticipation of its privatization, the group enhanced its reinsurance protection and maximized gains on its bond and stock portfolios. Despite the decline in investment income (due to re-investment at lower rates), the improvement in CPM’s recent operating performance reflects lower levels of loss reserve development, rate increases on new and renewal business, growth in its agency market, favorable frequency and severity trends as well as expense savings realized from downsizing operations.
In spite of these positive rating factors, CPM is exposed to the execution risk associated with the change in its operating status. Given its new tax-paying status, lower re-investment yields and challenging market conditions in the workers’ compensation line of business, the group faces uncertainty regarding its ability to improve its underwriting and operating results to perform in-line with its similarly rated peers. CPM’s most recent cumulative five-year period of underwriting and operating results were negatively impacted by its prior status as a state fund, which reflected a not-for-profit operating philosophy, coupled with recent years of competitive market conditions, rising loss costs, adverse development and a weak macroeconomic environment.
While A.M. Best believes CPM’s ratings and outlook are well positioned at the current level, factors that may trigger positive rating actions include underwriting and operating results improving and consistently performing in line with higher rated peers. The organization’s ratings could come under pressure should the continued soft market conditions and a lack of underwriting discipline result in its underwriting and overall profitability underperforming expectations; local legislative/regulatory or economic changes adversely affect the group’s operating fundamentals; or capitalization does not meet rating parameters.