The rating downgrades for Wawanesa Mutual reflect its weakened operating performance over the medium term, with underwriting and operating ratios (current, five-year and 10-year), trailing industry averages. The company’s earnings metrics were mixed when compared with the composite and fall short of performance expectations at the current rating level. The performance in 2016 did not cause the negative rating pressure; however, it amplified the problems that had been plaguing Wawanesa Mutual for some time. At the core level, the company’s underwriting is improving, but severe events aren’t being mitigated enough to keep mediocre performance from weakening further.
Wawanesa Mutual is experiencing pricing pressure in its largest premium segment, auto, (approximately 60% of the company’s total net written premium), which is heavily regulated, especially in
Further negative rating actions could take place for Wawanesa Mutual in the near to medium term if the company is unable to correct its underwriting profitability issues; incurs material losses in its risk-adjusted capitalization; is unable to contain the group’s exposure to catastrophe events within its underwriting footprint or has substantial adverse reserve development relative to its peers, as well as the industry’s averages. Positive rating movement could occur with sustained and consistent profitable underwriting results, complementing the company’s already sustained operating profitability.
The rating and outlook affirmations reflect WGIC’s improved, but still weak operating performance in 2016. The company’s below-industry average underwriting and operating performance plateaued in 2016 due to its efforts, as well as the explicit and implicit support from its parent, Wawanesa Mutual. Rate taking and product modifications were at the root of these efforts. The newly completed client facing system that quotes and binds, as well as a claims system that takes a more refined look at incoming data has helped the company improve its results somewhat. A recent
Further negative rating action could occur in the near to midterm if WGIC’s relationship to its parent or its support change in a manner that affects the operational stance of the company; if it incurs further material losses in its risk-adjusted capitalization; has a continued severe reduction in the profitability of its core book of business; or incurs more adverse development within its reserves relative to its peers, as well as the industry’s averages.
The ratings of Wawanesa Life reflect its strategic importance and contributions to its parent, Wawanesa Mutual, strong risk-adjusted capitalization, generally favorable operating trends and overall good credit quality of invested assets. Wawanesa Life also shares various services with its parent, such as distribution, management and operating platforms. The company complements its parent company’s property/casualty offerings by selling life, annuity, and accident and sickness products. Partially offsetting rating factors include operating losses in its non-participating lines of business, modest premium growth, and challenges associated with the low interest rate environment and in expanding its business profile in a highly competitive marketplace that is dominated by a few large insurance groups.
Positive rating actions for Wawanesa Life may occur if there is an upgrade in Wawanesa Mutual’s ratings. Negative rating actions may occur if the Wawanesa Life’s risk-adjusted capitalization decreases because of operating losses or if A.M. Best’s view of the strategic importance of Wawanesa Life relative to its parent declines.
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