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 Golden Bear Insurance Company (GBIC) (Stockton, CA).

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

The revised outlooks to negative from stable reflect escalation in adverse loss reserve development patterns that have been reported in recent periods, elevating the need for underlying performance to offset reserve volatility. In addition, the negative outlooks reflect concerns with the efficacy of GBIC’s ERM practices when it comes to managing reserve developments. Furthermore, the negative outlooks contemplate growing tail risk driven by earthquake coverage as it relates to the company’s ERM program. Management has implemented a series of initiatives to reverse the adverse developments, stemming primarily from the hospitality, habitational, and, to a smaller degree, the trampoline lines of business. They include applying assault and battery exclusions, limiting liquor coverage in certain states, eliminating large affordable housing accounts, focusing on complex claims, leveraging the Guidewire platform to strengthen analytics and reporting of claims and coordinating closely with outside actuaries to build reserves back up to actuarial central estimates. The expectation is for these initiatives to gain traction to alleviate pressure on GBIC’s operating performance and ERM.

AM Best assesses GBIC’s balance sheet strength as very strong, driven by the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), consistent growth in surplus in recent years, a conservative investment portfolio consisting primarily of high-quality bonds, cash and cash equivalents, and net underwriting leverage that tracks favorably relative to the composite average.

AM Best assesses GBIC’s operating performance as strong, which reflects the consistency of positive earnings, partially aided by a steady flow of net investment income. The company’s five-year combined and operating ratio averages are influenced by deteriorating results in 2021 stemming from the trampoline line of business, which the company eliminated. The company’s favorable expense ratio consistently benefits from ceding commissions related to its property lines of business. Management has implemented multiple initiatives to ensure the consistent trend of profitability continues in the future.

AM Best assesses GBIC’s business profile as neutral as the company is a specialty insurance writer, offering surplus lines coverage across the country and admitted coverage in California and Arizona. As a surplus lines writer, the company enters and exists markets as opportunities arise. Management has a proven track record of being able to target specific markets in which it can gain meaningful market share. The dynamic nature of the company’s product offerings tends to result in premium fluctuations over longer time frames, while generally maintaining a level of profitability.

AM Best assesses GBIC’s ERM as appropriate as the company maintains a formalized program deemed appropriate for its risk profile. The company maintains conservative underwriting and reinsurance guidelines to mitigate risks. Senior management has a solid understanding of client markets and emerging risks obtained through professional associations that influence risk identification and monitoring. The company retains elevated tail risk due to its earthquake exposure. However, management actively monitors this risk, while regularly adjusting the limit of catastrophe reinsurance protection to maintain sufficient internal coverage targets.

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