OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb” of Wolverine Mutual Insurance Company (Wolverine Mutual) (headquartered in Dowagiac, MI).
The revised outlook is based on Wolverine Mutual’s improved underwriting results, operating earnings and surplus growth in 2012 and 2013, which was driven by management’s strategic initiatives implemented in recent years.
The ratings reflect Wolverine Mutual's adequate capitalization and well-established market presence in Michigan and Indiana. The company's capitalization is derived from its modest investment leverage and consistently favorable loss reserve development. The company has implemented numerous strategic initiatives to improve underwriting results, which included the implementation of rate increases across all lines of business, the discontinuation of monoline homeowner policies, agency reviews and cancellations, the identification of foreclosed properties and the re-underwriting of older properties. In addition, a new information technology platform has been implemented, which is assisting the company in producing more consistent underwriting results and in reducing expenses going forward. Furthermore, in an effort to reduce expenses, the company discontinued its management incentive compensation program, terminated its pension plan, reduced its work force, froze wages and limited employee health plan benefits.
Partially offsetting these positive attributes are the company's above-average underwriting leverage and unfavorable five-year operating performance. The unfavorable operating performance over the most recent five-year period was driven by substantial underwriting losses and gradually declining net investment income. The underwriting results were reflective of an increased frequency and severity of storm losses and an increased frequency of fire losses. The company's underwriting expense ratio also trended upward for most of the period, driven by expenses from upgrades to its technology platform. However, the underwriting expense ratio declined in 2012 and 2013, driven by management’s cost reduction initiatives and solid premium growth.
Positive rating actions would require a sustained trend of favorable operating earnings and increased risk-adjusted capitalization. Negative rating actions would result from a continuation of the unfavorable operating earnings reported over the most recent five-year period and/or a decline in risk adjusted capitalization below a level supportive of the ratings.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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