OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” (Good) from “a-” (Excellent) of St. Charles Insurance Company Risk Retention Group (St. Charles) (Charleston, South Carolina). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect St. Charles balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, very limited business profile and appropriate enterprise risk management.
The rating downgrades reflect a decline in AM Best’s assessment of St. Charles’ operating performance and business profile assessments, which is the result of management’s recent decision to discontinue writing new contract liability business in the risk retention group (RRG) and place its existing policies into runoff. The reduction in St. Charles’ operating performance level, to adequate from strong, is driven by uncertainty around the sustainability of the company’s future earnings prospects, as it operates in runoff. At the same time, the company’s business profile assessment was also lowered to very limited from limited, reflecting the diminishing utilization of the RRG as an insurance company.
St. Charles’ balance sheet strength is supported by very strong level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). However, St. Charles’ surplus size and, therefore, insurance capacity was significantly reduced in 2021, due to a stockholder dividend that was paid to the parent. The stable outlooks reflect AM Best's expectation that St. Charles’ risk-adjusted capitalization will remain at the very strong level (as measured by BCAR), and that the company will be able to maintain adequate operating performance from modest investment income as the company operates through runoff of its remaining service contract liabilities.
Negative rating action could occur following a material decline in risk-adjusted capitalization attributed to further declines in surplus. Additionally, negative movement could result following a sustained deterioration in the company’s operating performance.
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