Oldwick, NJ -(BusinessWire)- A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Kentucky Employers’ Mutual Insurance (KEMI) (Lexington, KY).
The stable outlook reflects KEMI’s solid risk-adjusted capitalization; substantially improved underwriting and overall operating performance in 2012 and 2013, following significant reported operating losses in 2010 and 2011; and expectations of continued favorable operating performance in the near term. The ratings also reflect KEMI’s leading market share position as a provider of workers’ compensation coverage in Kentucky.
Offsetting these positive factors is the deterioration in the company’s underwriting results in recent years, as well as adverse reserve development occurring on prior accident years, particularly in 2010 and 2011 related to increased black lung claims as a result of the Byrd Amendment attached to the Patient Protection and Affordable Care Act. While the company’s underwriting losses were lower in 2012 and 2013 and reserves developed favorably, current accident year underwriting losses remain elevated. Additionally, KEMI maintains a limited spread of risk as a mono-line, mono-state workers’ compensation writer, which inherently exposes the company to potential changes within the economic, competitive and regulatory environments. Also, movements in Washington focused on tax-exempt organizations could potentially impact the federal tax-exempt status of certain state funds such as KEMI.
KEMI’s ratings could come under pressure if soft market conditions and a lack of underwriting discipline result in the company underperforming its peers on underwriting and overall profitability, or should there be a material decline in the company’s risk-adjusted capitalization. Loss of KEMI’s federal tax-exempt status also could drive negative pressure on the ratings.