AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of "a" of the members of GeoVera Insurance Group (GeoVera) (headquartered in Fairfield, CA), which operate under an intercompany reinsurance agreement. (See below for a listing of the companies.)
These Credit Ratings (ratings) reflect GeoVera’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.
The negative outlooks follow several years of outsized catastrophe losses, which has weakened GeoVera's operating performance relative to similarly assessed companies. The increased catastrophe activity includes almost 30 points in recent annual combined ratios on average. The company budgets a sound catastrophe load annually, but recent related activity has generated losses exceeding budget. In addition, high acquisition costs incrementally increased the expense ratio as part of expansion initiatives introduced in 2015. Although the reinsurance program has been effective in protecting GeoVera from large losses, the company has been impacted by increasingly frequent catastrophe and near catastrophe-level activity, resulting in volatile operating results.
AM Best expects prospective operating performance to improve as a result of management's strategy to reshape the company’s portfolio and increase pricing on residential wind business while expanding the use of endorsements limiting exposure to weather-driven losses. Under the leadership of its new CEO, GeoVera is executing its strategy to exit admitted wind and non-core markets and diversify its book of business, with renewed growth in the residential earthquake book and assumption of a portion of commercial wind exposure underwritten by AmRisc LLC, a managing general agent that specializes in underwriting commercial catastrophe exposed property. A reduction of the homeowners’ book is expected to help lower the overall expense ratio, which is higher than its peers. Management expects the strategy to return the company to historically strong operating results.
Negative rating action may result if operating results fall short of management’s expectations for its revised underwriting strategy, or if volatility from catastrophe activity results in outsized losses that do not resemble similarly rated entities, or from a significant deterioration in capital strength. Positive rating action may result from consistent operating performance that compares favorably with the group's composite of personal property companies and similarly rated entities.
The FSR of A (Excellent) and the Long-Term ICRs of "a" have been affirmed, with outlooks revised to negative from stable for the following members of GeoVera Insurance Group:
Coastal Select Insurance Company
GeoVera Insurance Company
GeoVera Reinsurance, Ltd.
GeoVera Specialty Insurance Company
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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