AM Best Revises Outlooks to Negative for Northern Neck Insurance Company
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of "a-" (Excellent) of Northern Neck Insurance Company (Northern Neck) (Irvington, VA).
The Credit Ratings (ratings) reflect Northern Neck's balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The revision of the outlooks to negative from stable reflects pressure on Northern Neck's overall operating performance due to increased volatility in recent years that pressures the adequate assessment. Over the most recent five-year period, the company has been challenged by volatile weather-related events, severe fire losses and deterioration in the auto book of business, most notably in 2022. Management has outlined several corrective measures, which include rate increases, tightened underwriting guidelines, and mitigation initiatives, as well as agency management efforts. The negative outlooks further reflect erosion in Northern Neck's overall balance sheet strength in 2022, marked by a material decline in capital and subsequent decline in risk-adjusted capitalization. Adverse loss reserve development continues, which unfavorably impacts the company's operating performance results and overall balance sheet strength.
Northern Neck's balance sheet strength reflects the strongest level of risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), and surplus growth in eight of the past 10 years, which has relied on investment earnings to offset increased underwritig volatility in recent years. The limited business profile reflects the company's single-state property predominate book of business with correlating lines of risk. As a result, Northern Neck is exposed to frequent and severe weather-related events and competitive market pressures. AM Best views ERM as appropriate for the risk profile, supported by the company's developed framework and risk management capabilities.
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