A.M. Best Co. has lowered the financial strength rating to A- (Excellent) from A (Excellent) for California-based Crusader Insurance Co., Woodland Hills, Calif., and assigned it a negative outlook.
The rating action follows A.M. Best’s review of the company’s fourth-quarter financial results that included a $9.2 million charge for adverse loss-reserve development. The lowering reflects the decrease in Crusader’s overall capitalization.
Over the last several years, Crusader has recorded a substantial jump in underwriting losses due to significant adverse loss-reserve development totaling $4.5 million and $19.3 million in 2000 and 2001, respectively. Crusader’s incurred losses and loss-adjustment expenses during this time were negatively affected by higher-than-anticipated claims costs from the liquor liability business outside of California in accident years 1998 through 2000.
Further, as a result of changes in California case law—that expanded coverage and increased loss exposure on construction-defect claims—Crusader experienced continued losses occurring in or prior to the company’s revision of its policy forms in 1995. During 2001, the company was negatively impacted by adverse development on its apartment house program in excess of the amounts previously estimated. But despite losing one-third of its policyholder surplus since year-end 1999, Crusader’s overall capitalization currently supports an Excellent rating.
Crusader is geographically concentrated with 86 percent of its business derived from California (largely southern California), exposing it to regulatory, economic and catastrophic risk. Somewhat offsetting this concern is the company’s employment of prudent catastrophe-mitigation strategies that have included geographic expansion, improving territorial spread of risk in California and utilizing zonal aggregates and catastrophe reinsurance protection.
Notwithstanding the lowering, the current rating reflects the company’s excellent capitalization, historically profitable operating performance and its solid local market presence. Crusader’s marketing strategy is looking to develop strong long-term agency relationships through attractive compensation packages fostering both loyalty and better risk selection in its commercial package book of business. Enhancing the company’s strength is the financial flexibility afforded by its publicly traded, debt-free parent.
In an effort to stabilize and improve operating performance, management has taken corrective actions including instituting more stringent underwriting criteria, limiting coverages offered and increasing rates. Moreover, Crusader will not expand into more programs or territories until it has improved its operating performance.
A.M. Best, however, remains concerned with the potential for further adverse loss-reserve development and the negative impact it could have on the company’s operating performance and overall capitalization. As a result, A.M. Best sees the rating outlook as negative.
Topics California Trends AM Best
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