AM Best has downgraded the Financial Strength Rating to B- (Fair) from B+ (Good) and the Long-Term Issuer Credit Rating to “bb-” (Fair) from “bbb-” (Good) of PrimeOne Insurance Company in Dallas, Texas, a wholly own subsidiary of PrimeOne Insurance Group. The outlook of these Credit Ratings (ratings) has been revised to negative from stable.
The ratings reflect PrimeOne’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).
AM Best said the rating downgrades and revised outlooks to negative reflect weakening in PrimeOne’s balance sheet strength metrics during the fourth quarter of 2024, primarily in the form of surplus erosion, declining risk-adjusted capitalization levels and increasing leverage measures. An increase in incurred but not reported (IBNR) reserves as a result of differing opinions among the company’s actuaries was the main driver of surplus deterioration, which declined by 28.7% in the fourth quarter alone.
This caused the company to miss its projections for year-end 2024 by a significant margin, and when coupled with a growing premium base, was the reason for the significant decline in risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), The credit rating agency said.
The difference in actuarial opinions and heightened IBNR reserves are not expected to continue going forward. However, the company’s current level of capital and significant deviation in actual results versus projected results better align the group’s overall balance sheet strength with an assessment level of adequate.
PrimeOne’s operating performance is assessed as marginal largely due to volatile underwriting results in recent years which have been partially offset by growing investment income. The group’s five-year average return-on-revenue and return-on-equity ratios lag its peer composite averages; however, these rebounded in 2024 and are expected to improve going forward due to profitability initiatives. The group has taken steps to slow premium growth, such as reducing its participation on some key programs, as management is aware of maintaining a conservative surplus to premium ratio.
PrimeOne’s business profile is considered to be limited given its role as a small commercial underwriter in predominantly three states offering commercial property, general liability, and liquor liability with an emphasis on the hospitality business. Although the group is an admitted insurer in several states, almost all of its business is produced in Utah, Michigan and Nevada.
The group’s ERM is assessed as marginal relative to its risk profile; however, notable advancements in its ERM framework and capabilities have been made recently but have not had a measurable impact on result, AM Best said.
Source: AM Best
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