AM Best Removes From Under Review With Negative Implications, Downgrades Credit Ratings of U.S.-Based Wawanesa General Insurance Company

AM Best has removed from under review with negative implications and downgraded the Financial Strength Rating (FSR) to C++ (Marginal) from B (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “b+” (Marginal) from “bb” (Fair) of Wawanesa General Insurance Company (Wawanesa General) (San Diego, CA). The outlook assigned to the FSR is stable, while the outlook assigned to the Long-Term ICR is negative.

The Credit Ratings (ratings) reflect Wawanesa General’s balance sheet strength, which AM Best assesses as weak, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.

The rating downgrades reflect weakening in Wawanesa General’s balance sheet strength assessment given an additional and large decline in policyholder surplus during fourth-quarter 2022, primarily driven by an inability to receive rate approval from the California Department of Insurance. This decline was a result of a downturn in operating performance, as the current inflationary environment and other factors drove an increase in loss costs. The weakened performance for full-year 2022 also was impacted significantly by the company’s inability to secure adequate rate increases from California’s Department of Insurance. Results also have been impacted negatively by $59.3 million in adverse reserve development due to factors experienced across the industry. Despite management initiatives to de-risk the balance sheet related to equity exposure, investment risk relative to capital has increased given the decline in policyholder surplus, below-investment-grade bonds now comprise approximately 32% of surplus at Dec. 31, 2022.

The significant downturn in Wawanesa General’s operating performance from the underwriting losses occurring in the latter half of 2022 has weakened the company’s capital position. The company has experienced regulatory rate issues, which are occurring in the California auto market, and it continues to be impacted by a higher frequency and severity of claims and inflation. Although the company has received an approved rate increase of roughly 39%, the balance sheet in the near term will still contract due to operating losses, which are not expected to reverse until late 2023. The Long-Term ICR outlook also reflects AM Best’s concerns with the company’s ability to manage its risk capabilities around product, underwriting and reserve risks, which were magnified by the concentration of auto risk within the California marketplace and a challenging regulatory environment.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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