A.M. Best: Outlook Stable for Southern Pioneer Property and Casualty Insurance

A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of B++ (Good) and the issuer credit rating of “bbb” of Southern Pioneer Property and Casualty Insurance Co. (Southern Pioneer) in Jonesboro, Ark.

The ratings reflect the company’s generally favorable operating results and improved risk-adjusted capitalization.

In prior years, capitalization had been hindered by the acquisition of a large book of business from CEM Insurance Co. (CEM). However, underwriting leverage ratios have subsequently declined to a more adequate level. Southern Pioneer’s return to operating profitability has also been bolstered by management’s niche expertise in its chosen markets, the company’s utilization of multiple distribution sources and its improved technology infrastructure.

Further supporting the ratings is the managing owners’ capital contribution of $6 million in 2015. The revised outlook reflects the company’s improved risk-adjusted capitalization, improved operating results and continued integration of CEM’s business.

Partially offsetting these factors are the company’s volatile operating results, elevated expense structure and inherent risk associated with high exposure growth following the acquisition of CEM’s business.

Operating results have been volatile over the past five years as evidenced by a wide variation in pre-tax returns on revenue and equity. As a result, the five-year average of these ratios compare unfavorably with the commercial automobile composite.

In addition, the elevated expense structure, driven by commission and other expenses, has increased total underwriting expenses. However, this is somewhat mitigated by the underlying performance of the book of business as the company’s five-year average pure loss ratio compares favorably to the commercial automobile composite.

Source: A.M. Best

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