In a move revising its outlook on four well-known regional insurers, AM Best announced a change in its outlook to negative from stable for the NLC Insurance Companies Pool. The rating agency did, however, affirm the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” (Excellent) for the pool, which consists of the New London County Mutual Insurance Company, Hingham Mutual Fire Insurance Company, Thames Insurance Company, Inc. and Danbury Insurance Company.
In its remarks AM Best noted that the “Credit Ratings (ratings) of NLC reflect its balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).”
The following is a reprint of the rest of AM Best’s reasoning for the change in outlook:
“The revised outlooks to negative from stable are based on deteriorating trends in NLC’s operating performance in recent years, largely reflective of increased frequency and severity of weather-related events and adverse development in its core lines of business. Additionally, increased expenses associated with the amortization of a new policy administration system and elevated commission costs, typical of New England carriers, contribute to NLC’s high underwriting expense ratio. Without sustained improvement, this could lead to a decline in the overall assessment of operating performance in the near to intermediate term.
NLC maintains strong overall balance sheet strength, supported by very strong risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, which is somewhat offset by limited surplus growth. Underwriting leverage ratios are maintained at levels comparable with the personal property composite. NLC’s business profile is viewed as neutral, as its geographic spread of risk is strategically concentrated in Connecticut, Massachusetts and Rhode Island, and distributed through a strong independent agency network. AM Best views NLC’s ERM framework, which includes a committee led by the CEO and consists of other senior managers that collaborate in identifying risks and developing appropriate risk mitigation procedures, as appropriate for its risk profile.”
