OLDWICK, N.J.– AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb+” of The Providence Mutual Fire Insurance Company (Providence Mutual) (Warwick, RI). 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 appropriate enterprise risk management (ERM).
The revised outlook of the Long-Term ICR primarily reflects AM Best’s concern over the effectiveness of Providence Mutual’s ERM program and its ability to mitigate ongoing operational challenges. The company has been challenged by several issues over the past five years, including severe weather events and increased frequency of large losses, as well as pricing shortfalls in its personal auto business. Management has responded by implementing 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 and negatively impacts its operating performance and the company’s ability to generate organic surplus growth through core operations.
Providence Mutual’s balance sheet strength continues to be supported by its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and historically favorable loss reserve development, partially offset by elevated common stock leverage and the aforementioned challenges to grow surplus through underwriting results. While the company’s operating performance over the long term has reported a number of years with materially depressed results, its performance in most years has been marginal. The business profile reflects a portfolio that lends itself to consistent volatility, which is reflected in AM Best’s assessment of limited.
