AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” (Good) from “bbb+” (Good) and affirmed the Financial Strength Rating (FSR) of B++ (Good) of Providence Mutual Fire Insurance Company (Providence Mutual) (Warwick, RI). The outlook of the Long-Term ICR has been revised to stable from negative, while the outlook of the FSR is stable.
The Credit Ratings (ratings) reflect Providence Mutual’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).
The downgrading of the Long-Term ICR primarily reflects AM Best’s concern over the effectiveness of Providence Mutual’s ERM and its ability to mitigate ongoing operational challenges. The company has been challenged by several issues over the last five years, including severe weather events, an increased frequency of large losses, pricing shortfalls in its personal auto business and most recently the impact of inflation on loss costs.
Management has responded by implementing rate increases in states it does business in and its core lines of business, as well as more restrictive underwriting guidelines, increasing attention to agency management, reducing its risk appetite for unsupported auto business and reducing coastal exposures. Despite these initiatives, volatility continues to negatively impact the company’s operating performance and its ability to generate organic surplus growth through core operations.
The stable outlooks are based on AM Best’s expectation that Providence Mutual will maintain very strong balance sheet strength over the intermediate term, driven by the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR) despite surplus volatility from operating losses and equity market fluctuation in recent years. Furthermore, the stable outlooks contemplate the various performance improvement initiatives implemented by management in response to marginal performance metrics and AM Best’s expectation that these efforts will manifest themselves in improved results.
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.
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