OLDWICK, NJ–(BUSINESS WIRE)–AM the best has downgraded the Financial Strength Rating to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Rating to “bbb-” (Good) from “bbb” (Good) of members of Bankers Insurance Group (Bankers). Group members are Bankers Insurance Company (St. Petersburg, FL) and its property/casualty subsidiaries, Bankers Specialty Insurance Company (Metairie, LA) and First Community Insurance Company (St. Petersburg, FL). The outlook of these Credit Ratings (ratings) is negative.
The ratings reflect the strength of Bankers’ balance sheet, which AM Best rates as strong, as well as its operating margin performance, limited business profile and appropriate enterprise risk management (ERM).
Bankers’ downgrade reflects the continued deterioration of the surplus and ongoing challenges in reserve development. Bankers have reported declining surpluses in four of the past five years due to rising underwriting losses. This trend has continued with additional declines in the surplus during the first half of 2022. Reserves, which continue to develop negatively, have been affected in recent years by widespread inflationary pressures in the homeowners’ line of business. Flowlines, which had previously driven unfavorable development, have started to trend favorably due to years of strengthening reserves and a decline in exposures given their runoff status.
The negative outlook is based on the aforementioned issues creating concerns about the effectiveness of Bankers’ ERM program against current and emerging risks. Bankers offers personal property coverage in Florida, Louisiana and South Carolina, all of which expose the group to severe weather events associated with coastal states. Social inflationary pressures, particularly in Florida, and sharply rising reinsurance costs have challenged the group’s performance. Management has responded by implementing a number of corrective actions, including non-renewal of problematic risks and a strategic exit of personal lines in Florida, Louisiana and South Carolina. Exits from these segments could stabilize results as the homeowner line is driving much of the volatility seen over the past five years due to increased frequency and severity of storms. In the future, Bankers is looking to focus on commercial risks and guarantees (ie conditional bonds), as both have produced suitable results for the group in the past. While these initiatives may favorably impact the risk profile and stabilize results, the ultimate effectiveness of these efforts and their impact on capital and operating performance remain uncertain.
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