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A.M. Best Revises Outlook to Negative and Affirms Ratings of The Wawanesa Mutual Insurance Company
[November 21, 2014]

A.M. Best Revises Outlook to Negative and Affirms Ratings of The Wawanesa Mutual Insurance Company


OLDWICK, N.J. --(Business Wire)--

A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of A+ and the issuer credit rating (ICR) of "aa-" of The Wawanesa Mutual Insurance Company (Wawanesa Mutual) (Winnipeg, Manitoba, Canada).

Concurrently, A.M. Best has affirmed the FSR of A and the ICR of "a" of Wawanesa Mutual's two subsidiaries: Wawanesa General Insurance Company (WGIC) (San Diego, CA (News - Alert)) and The Wawanesa Life Insurance Company (WLIC) (Winnipeg, Manitoba, Canada). The outlook for both WGIC and WLIC is stable.

The revised outlook for Wawanesa Mutual reflects the increased volatility of underwriting and operating earnings over several years, which has recently been exacerbated by severe and frequent catastrophic weather events and intense pricing pressure in certain market segments. As a result, Wawanesa Mutual's profitability ratios are currently below A.M. Best's expectations at the company's current rating level.

The company is currently experiencing intense pricing pressure in its largest premium segment, auto, in Ontario, which is heavily regulated. Results on property lines have also been challenged by a continuing pattern of more frequent and severe storm losses. Weather-related losses in Alberta, Manitoba, and Saskatchewan, as well as Ontario, have recently been the primary cause of the unfavorable results. In addition, Wawanesa Mutual's invested assets show an above average concentration of risk in equities, which could infuse additional volatility into the company's short-term operating results.

A.M. Best anticipates, however, that Wawanesa Mutual will continue to maintain strong risk-adjusted capitalization, which is supported by the company's very good business profile. Risks are spread throughout all provinces (except Newfoundland). Wawanesa Mutual ranks within the top 10 in most major markets and is Canada's largest mutual in terms of equity and premiums written. The company maintains an expansive asset base, which has driven consistent surplus growth. Wawanesa Mutual is making strides to improve pricing through rate increases, product segmentation and product reform, which shuld benefit underwriting results going forward. Its ranking among market leaders has been achieved through steady, modest growth attributed to its successful long-term relationships with brokers, which have helped the company maintain a strong regional presence. A.M. Best will lower the ratings of the Wawanesa Mutual in the near to midterm if the group is unable to materially improve upon its underwriting results; incurs material losses in its capitalization; is unable to contain the group's exposure to catastrophic weather events within its underwriting footprint; or has substantial adverse reserve development relative to their peers, as well as industry averages.



The ratings of WGIC reflect its excellent risk-adjusted capitalization, below average expense structure, long-standing presence in the California private passenger auto market, name brand recognition, and the implicit and explicit financial support of its highly rated parent. These positive rating factors remain partially offset by below average underwriting and operating performance, and concentration risk in the state of California.

While A.M. Best does not expect to lower (or place a negative outlook on) the ratings in the near to midterm, such actions would ensue if Wawanesa General Insurance's relationship to its parent changed in a manner that affects the operational stance of the company; material losses are incurred in its capitalization; there is a severe reduction in the profitability of its core book of business; or there is a severe adverse development within its reserves relative to its peers, as well as industry averages.


The ratings of WLIC recognize its strong risk-adjusted capital position, profitable operations and the support it receives from Wawanesa Mutual through shared management, operating platforms and common customer base, as well as expanded distribution through managing general agents. Offsetting factors include WLIC's ability to grow new market share, which will remain challenged as it continues to compete in markets dominated by considerably larger companies as well as operating challenges in the current low interest rate environment.

The stable outlook on the ratings of WLIC reflects A.M. Best's expectation that the ratings will likely not change over the next 12-24 months. A.M. Best expects the company to maintain stable capitalization and positive earnings during this period. The ratings of WLIC could experience downward movement if the ratings of The Wawanesa Mutual Insurance Company, its ultimate parent, should come under pressure or if the company's earnings performance does not meet A.M. Best's expectation or a material change occurs in its business profile. The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

• Rating Members of Insurance Groups

• Risk Management and the Rating Process for Insurance Companies

• Catastrophe Analysis in A.M. Best Ratings

• Understanding BCAR for Property/Casualty Insurers

• Understanding BCAR for Canadian Property/Casualty Insurers

• Understanding BCAR for U.S. and Canadian Life/Health Insurers

• Understanding Universal BCAR

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.


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