OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of B+ (Good) and issuer credit rating of “bbb-” of Frank Winston Crum Insurance, Inc. (FWCI) (Clearwater, FL).

The rating actions reflect FWCI’s poor underwriting and operating results in 2011, the revised business profile and execution risk associated with the continued expansion of its guaranteed cost book, as well as management’s plans to diversify into other lines of business. The company is expected to report a significant underwriting and operating loss in 2011, driven by losses in its guaranteed cost book of business and in its professional employer organization (PEO) related business. Furthermore, as a result of its geographic concentration risk, with approximately 70% of its business in Florida, FWCI's operations are highly exposed to additional competitive pressures and business environment issues such as state reforms, state mandated rate changes and legislative changes. In an effort to limit its concentration risk, management is focused on obtaining licenses and growing FWCI's book of business in states where the FrankCrum family of PEOs operate.

The company has also focused on growing its premium outside the PEO related business by continuing to expand its guaranteed cost book of business. Considering the inherent risks of growing this business amidst challenging market conditions, as evidenced by the significant deterioration in underwriting and operating results in 2011, A.M. Best will continue to monitor FWCI's progress in achieving its business plan to ensure that premium growth and the accumulation of loss reserves do not strain its risk-adjusted capitalization and that overall operating results are achieved in accordance with rating expectations.

The ratings also reflect FWCI’s adequate level of risk-adjusted capitalization and the expected financial support provided in the form of capital contributions from its owner, the Crum family. The Crum family initially infused $7.0 million into the company in 2003, and A.M. Best anticipates they will continue to support planned premium growth with additional capital contributions as necessary, allowing the company to maintain a level of capitalization that remains fully supportive of its current ratings.

Factors that could trigger negative rating actions include a decline in risk-adjusted capitalization that is below A.M. Best expectations, the continuation of poor underwriting results, especially if driven by significant adverse loss reserve development, and any material deviation from the company's submitted financial projections. In addition, a lack of financial support from the Crum family in maintaining the company’s capital adequacy could also trigger a negative rating action. Positive rating actions could be taken on FWCI's ratings if underwriting and operating results improve and are consistently in line with higher rated workers' compensation carriers, along with maintaining a supportive level of risk-adjusted capitalization.

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. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Catastrophe Analysis in A.M. Best Ratings”; and “The Treatment of Terrorism Risk in the Rating Evaluation.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, 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 © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Ed Keane
Senior Financial Analyst
908-439-2200, ext. 5291
edward.keane@ambest.com
Rachelle Morrow
Senior Manager, Public Relations
908-439-2200, ext. 5378
rachelle.morrow@ambest.com
Mike Lagomarsino, CFA
Assistant Vice President
908-439-2200, ext. 5706
michael.lagomarsino@ambest.com
Jim Peavy
Assistant Vice President, Public Relations
908-439-2200, ext. 5644
james.peavy@ambest.com

Source: A.M. Best Co.