AM Best has downgraded the Financial Strength Rating (FSR) to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “a-” from “a” of the rated operating subsidiaries of James River Group (JRG).
AM Best has also downgraded the Long-Term ICR to “bbb-” from “bbb” of JRG. The outlook of these ratings is negative.
The ratings are said to reflect the group’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management.
The downgrades follow the release of first-quarter earnings and reflect a reduction in the assessment of the group’s enterprise risk management.
AM Best says the risk management capabilities of the organisation proved to have weaknesses in risk tolerances, non-modelled risks, management controls and risk culture.
Furthermore, the current ERM framework and risk evaluation is seen as needing to evolve proactively and demonstrate competencies necessary to mitigate any effect on the organisation’s balance sheet strength, operating performance or business profile.
The negative outlooks reflect AM Best’s concerns with the group’s balance sheet strength assessment given the recurring nature of adverse reserve development in commercial auto lines.
While JRG Holdings was able to replenish capital quickly via a common stock offering, AM Best’s view is that long-term mitigation of the impact of adverse reserve development is necessary to demonstrate stability in reserves and consistent risk-adjusted capital composition.
