A.M. Best Co. announced it has downgraded the financial strength rating to B (Fair) from B+ (Good) and issuer credit rating to “bb” from “bbb-” of workers’ compensation insurer LEMIC Insurance Co. (LEMIC) of Baton Rouge, La.
Both ratings have been placed under review with negative implications.
LEMIC writes workers’ comp through independent insurance agents in Louisiana, Mississippi, Arkansas and Tennessee.
The rating downgrades are the result of the reduction in LEMIC’s risk-adjusted capitalization following volatility in its underwriting performance in recent years.
The company experienced significant underwriting losses in 2010 and 2012 and strengthened its loss and loss adjustment expense reserves at year-end 2012.
These factors contributed to a sharp decline in LEMIC’s policyholder surplus in 2012, which resulted in elevated underwriting leverage measures and risk-adjusted capitalization that is no longer supportive of its previous rating level.
The under review status reflects LEMIC’s 2012 results, which were significantly worse than projected. The ratings will remain under review pending the conclusion of discussions between A.M. Best and LEMIC’s management regarding actions being considered to strengthen the company’s financial condition in the near term.
The negative implications reflect A.M. Best’s concerns regarding the potential for additional deterioration in LEMIC’s financial condition should management fail to execute these actions. If the capital weakness exhibited in LEMIC’s year-end 2012 filings is not remedied in the near term, there would likely be further downward pressure on its ratings.
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