Oldwick, NJ -(BusinessWire)- A.M. Best has upgraded the financial strength rating (FSR) to A (Excellent) from A- (Excellent) and the issuer credit rating (ICR) to “a” from “a-” of Advantage Workers Compensation Insurance Company (Advantage) (Indianapolis, IN). A.M. Best also affirmed the FSR of A (Excellent) and the ICR of “a” of Workers Compensation Fund (WCF) (Sandy, UT). The ratings are the result of these companies becoming members in a newly formed pool, WCF Insurance Group (WCF Group), effective Jan. 1, 2016. The outlook for each rating is stable.
The ratings reflect WCF Group’s superior level of risk-adjusted capitalization, historically solid consolidated operating performance, conservative operating philosophy and dominant position in the Utah workers’ compensation market, with approximately 52% market share based on direct premiums written. The ratings also acknowledge the group’s experienced shared management team and board of directors and unparalleled local presence, as well as the opportunities available to WCF Group for geographic and product diversification as a result of the recent changes in WCF’s enabling legislation under Utah SB63, which became law in 2015. WCF Group is now operating in Utah and other U.S. states as a taxable business enterprise with few restrictions. The group’s positive attributes are largely driven by its adherence to sound underwriting principles, aggressive claims management, effective preferred provider network and loss control services and prudent investment guidelines. Although WCF serves as the guaranteed market for workers’ compensation in Utah, its overall operating performance historically has compared favorably with the workers’ compensation industry composite. Lastly, WCF benefits from its ability to utilize multiple pricing tiers.
These positive rating factors are somewhat offset by the variation in WCF’s, and particularly Advantage’s, operating results in recent years; potential execution risks associated with the group’s planned geographical expansion in states other than Utah; its concentration in Utah workers’ compensation business that exposes operations to potential adverse changes in local regulatory, economic and competitive environments; the potential for execution risk associated with integrating operations of the pool members; and WCF’s loss of its federal tax exemption as a result of changes to the enabling legislation. Negative rating pressure could occur if soft market conditions and a lack of underwriting discipline result in WCF Group’s underwriting and overall profitability underperforming peers for a sustained period.