Oldwick, NJ -(BusinessWire)- A.M. Best Co. has downgraded the financial strength rating (FSR) to B (Fair) from B+ (Good) and issuer credit rating (ICR) to “bb+” from “bbb-” of Springfield Insurance Company (Springfield) (Covina, CA). The outlook for the FSR is stable, while the outlook for the ICR has been revised to negative from stable.
The rating actions are based on Springfield’s declining risk-adjusted capitalization during 2012 and through the first nine months of 2013. The deterioration in the company’s risk-adjusted capitalization was primarily driven by adverse loss reserve development on the more recent accident years, which drove underwriting losses and increased underwriting and loss reserve leverage. In addition, Springfield has a large premium dependence on California workers’ compensation, where pricing and regulatory reform volatility can cause adverse results.
Offsetting these negative rating factors are management’s expertise and knowledge of the grocery marketplace, Springfield’s conservative underwriting strategy and the initiatives management has taken to improve both rate and loss reserve adequacy. The negative outlook on the ICR reflects A.M. Best’s view that Springfield faces execution risk in returning to a profitable footing, without which capital could continue to erode through losses. Should the ICR be downgraded to “bb”, the FSR would remain at B (Fair). As a result, the current outlook for the FSR is stable.
Further negative rating actions could occur if Springfield continues to experience weakened combined and operating ratios, further material adverse development or capital adequacy declines materially as measured by Best’s Capital Adequacy Ratio (BCAR).
Source: BusinessWire