AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of McMillan-Warner Mutual Insurance Company (MWM) (Marshfield, WI).
These Credit Ratings (ratings) reflect MWM’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.
The revised outlooks reflect deterioration in MWM’s key balance sheet strength metrics, mainly in the form of reduced surplus, declining levels of overall risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR) and weakening balance sheet metrics. The company’s policyholder surplus declined by nearly 20% in 2022, driven by ongoing volatility on the underwriting side and supplemented by unrealized losses from the equity portfolio given its elevated common stock leverage. Ultimately, this volatility has generated an elevated reliance on reinsurance, rising underwriting and reserve leverage measures and declining levels of liquidity in MWM’s balance sheet.
Though management is focused on managing its exposures effectively and refining its book of business, MWM’s ability to support its current book, along with a growing personal automobile book of business, may be hindered over the near-term with its declining levels of risk-adjusted capitalization. Moreover, reinsurance market conditions may continue to present challenges for MWM in placing its program in a manner consistent with prior years, leading to potential higher retentions and lower limits, as the company experienced in 2022. Should further deterioration occur, the ratings may be downgraded.
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