AM Best Affirms Arrow Mutual’s Ratings, Revises Outlooks Citing Claim Dispute

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 Rating of “a-” (Excellent) of Arrow Mutual Liability Insurance Co.

AM Best said the credit ratings reflect the Chestnut Hill, Massachusetts-based workers’ compensation insurer’s balance sheet strength, which its analysts assess as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).

The revision of the outlooks to negative from stable reflects AM Best’s concern with the Arrow’s “downward trend in operating performance over the recent term.” This trend, which AM Best said also has put pressure on the company’s surplus, is driven by a “large claim dispute with a reinsurer, as well as elevated expenses.”

However, AM Best noted that the company is implementing “mitigating measures” and fully reflected the anticipated cost of the disputed claim in its 2023 annual statement.

Arrow’s balance sheet strength assessment is supported by its strongest level risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), at year-end 2023, and liquidity metrics that compare favorably with the industry. Arrow’s BCAR has remained at the strongest level despite the surplus decline in recent years.

The limited business profile assessment reflects Arrow’s small customer base, high concentration of clients in its home state of Massachusetts, as well as potential regulatory risks from said concentration, according to AM Best analysts.

AM Best said Arrow’s ERM assessment remains adequate given the company’s small size and the scale at which it operates. Due to the limited number of employees, Arrow works with a number of third parties to round out its operations.

According to company information on its website, Arrow Mutual operates similar to a group captive for large employers in Massachusetts, Maine, New Hampshire, and Rhode Island with $100,000 or more in premium. All policies are issued each year on January 1 at the manual rates established by the Massachusetts Division of Insurance.

Arrow uses retrospective rating as a method of returning premiums to policyholders based on their own experience. In addition, Arrow pays three dividends each year.

Topics Trends Massachusetts AM Best