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Insurer analysts at AM Best have downgraded the ratings of three companies in the Mid-Hudson Group citing a 32.7% decline in policyholder surplus as of September 30.

AM Best downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “bbb+” (Good) from “a-” (Excellent) of Claverack Cooperative Insurance Co, Midrox Insurance Co. and Mid-Hudson Co-Operative Insurance Co. These companies are collectively referred to as Mid-Hudson Group and are domiciled in Montgomery, New York.

According to AM Best, an increase in the number of large property fire losses, changes in case reserving practices and increased reinsurance costs contributed to the decline.

In addition, AM Best reported that the group had sizable unrealized investment losses, all contributing to the 32.7% decline in policyholder surplus.

In total, the group reported $5.3 million in underwriting losses and a combined ratio of 132.9%, with $4.1 million in unrealized investment losses that led to the year-to-date surplus decline.

AM Best revised the outlook of the FSR to stable from negative while the outlook for the Long-Term ICR is negative.

The ratings reflect the group’s balance sheet strength, which AM Best said is strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

However, the ratings further reflect the “unexpected deterioration in policyholder surplus” that resulted in a “corresponding decline in overall risk-adjusted capitalization,” as measured by Best’s Capital Adequacy Ratio (BCAR). This decline caused the overall balance sheet assessment to be revised downward to strong from very strong.

A negative outlook had been placed on the group’s ratings on Aug. 10, 2022, which reflected deterioration in the group’s operating performance over the past four years as the group reported unfavorable underwriting results from fire losses and weather-related events, as well as increased reinsurance costs.

The continuation of the negative outlook on the Long-Term ICR reflects deterioration in the group’s operating results.

AM Best added that while management has taken corrective action, the group will need to show “stabilization in operating performance metrics to avoid negative rating action over the intermediate term.”

Additionally, if the group’s operating performance and balance sheet metrics continue to deteriorate, it may bring into question the overall effectiveness of the group’s enterprise risk management program, the ratings agency said.

The revised outlook on the FSR to stable reflects the expectation that the group will be able to maintain its strong balance sheet metrics while corrective actions are implemented.

AM Best

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