AM Best Revises Outlooks to Negative for Rockford Mutual Insurance Company

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 Rockford Mutual Insurance Company (RMIC) (Rockford, IL).

These Credit Ratings (ratings) reflect RMIC’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).

The negative outlooks reflect continued erosion in the company’s surplus position and correlating risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). The lower capital base has led to an increase in underwriting leverage metrics. Additionally, adverse reserve development has been observed in recent years. Collectively, these trends have yet to stabilize over a protracted period of time and pressure the company’s current overall balance sheet strength assessment. Following surplus erosion in 2022, due to increased volatility in RMIC’s personal automobile book of business, its capital position weakened materially again in 2023 due to unprecedented weather-related losses, and to a lesser extent continued severe fire losses impacting the property book. Through third quarter 2024, the capital position was further impacted by the continuation of elevated weather-related losses, particularly multiple low level catastrophe losses and higher loss costs due to inflationary pressures.

The adequate operating performance assessment reflects RMIC’s historical underwriting performance as measured by its favorable five-year average combined ratio that benefits from better-than-average loss and loss-adjusted expense ratios. This position is partially offset by the company’s elevated underwriting expense ratio, driven by higher commission costs. However, RMIC’s combined ratio has been elevated in recent years compared with its historical performance due to increased volatility in underwriting results. Management has implemented several corrective strategies to improve underwriting performance, including the exit of habitational business, aggressive rate increases, tighter underwriting guidelines, slower production and agency management efforts. The limited business profile reflects RMIC’s geographic concentration in Illinois and property predominant risk exposure that exposes results to weather-related events and competitive market pressures. The company’s ERM is assessed as appropriate, as reflected by management’s continued focus on risk mitigation and control, aided by a comprehensive reinsurance program.

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