OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” (Excellent) of Mutual of Enumclaw Insurance Company and Enumclaw Property & Casualty Insurance Company, which comprise Enumclaw Insurance Group (Enumclaw). The companies are headquartered in Enumclaw, Washington.
The Credit Ratings (ratings) reflect Enumclaw’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The revised outlooks to negative from stable reflect material capital erosion that has been reported since 2021, with surplus declining by roughly 31% or $134 million from year-end 2021 through the first nine months of 2023. The decline in capital lowered Enumclaw’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), reducing the cushion above the threshold to be considered strongest that was reported in prior years. Furthermore, underwriting leverage measures have ticked up to a level modestly above the composite averages. Capital erosion has been influenced by volatility in the group’s operating performance, which was impacted by macro-economic conditions driving up current accident year loss costs and generating material adverse loss reserve development for prior years. Adverse development reflects strengthening actions taken by management and the settlement of claims at higher-than-expected levels. The negative outlooks also contemplate challenges faced within the group’s product and geographic footprint that led to underwriting losses in most years.
Enumclaw’s management is addressing volatility through comprehensive initiatives to de-risk exposure away from unprofitable segments and achieve rate adequacy. Several rate actions have been taken in 2023 that are expected to generate material premium in future periods. Concurrently, management identified pockets of the book of business to non-renew and redefined its risk appetite for certain segments to right-size performance. Enumclaw is expected to cull nearly 10% of the book of business based on direct premiums written. While actions are material, they have yet to gain material traction; however, they are an example of management continuing to refine its ERM program to mitigate risk more effectively.
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