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AM Best downgrades Bankers credit ratings

18th August 2022 - Author: Pete Carvill

AM Best has downgraded the credit ratings of the members of the Bankers Insurance Group.

am-best-logoThe firm said that it was switching the Financial Strength Rating to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Ratings to “bbb-” (Good) from “bbb” (Good). The group’s members are Bankers Insurance Company and its P&C subsidiaries, Bankers Specialty Insurance Company and First Community Insurance Company. AM Best said that the outlook of these Credit Ratings is negative.

AM Best said the reflect Bankers’ balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

In a statement, AM Best wrote: “The downgrade of Bankers’ ratings reflects ongoing surplus deterioration and continued challenges in reserve development. Bankers has reported surplus declines in four of the last five years due to elevated underwriting losses. This trend has continued with additional declines in surplus through the first half of 2022.”

It added: “Reserves, which continue to develop adversely, have been influenced in more-recent years by widespread inflation pressures in the homeowners line of business. Runoff lines, which previously had been driving adverse development, have begun to trend favourably due to years of reserves strengthening and a decline in exposures given their runoff status.”

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AM Best said the negative outlooks are based on concern regarding the efficacy of Bankers’ ERM program against current and emerging risks. Bankers provides personal property coverage in Florida, Louisiana and South Carolina, all of which exposes the group to severe weather events associated with coastal states. Social inflation pressures, particularly in Florida, and significantly rising reinsurance costs have challenged the group’s performance.

Bankers management has responded to issues within the market by implementing a number of corrective actions, including nonrenewal of problematic risks and a strategic exit of personal lines in Florida, Louisiana and South Carolina.

AM Best said that the exit from these segments may stabilise results as the homeowners line is driving much of the volatility seen over the past five years due to increasing storm frequency and severity.

It said that Bankers may look to focus on commercial risks and surety (i.e., bail bonds), as both have produced adequate results for the group in the past. While these initiatives may favourably impact the risk profile and stabilize results, the ultimate effectiveness of these efforts and their impact on capital and operating performance remain uncertain.

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