A.M. Best Downgrades Ratings of Michigan Commercial Insurance Mutual

A.M. Best Co. has downgraded the financial strength rating to B+ (Good) from B++ (Good) and issuer credit rating to "bbb-" from "bbb" of Michigan Commercial Insurance Mutual (MCIM) (Lansing, MI).

The outlook for all ratings is negative.

The rating actions reflect MCIM's poor underwriting and operating performance in recent years, which led to declines in policyholder surplus and a weakening in its risk-adjusted capitalization. Furthermore, the company maintains a business concentration risk, operating as a workers' compensation insurer. In recent years, MCIM has grown outside of Michigan and beyond its historical focus on construction and related trades exposures into lower hazard classes of business. These initiatives have resulted in a strain on the company's underwriting controls and led to further underwriting losses. This is due to competitive market conditions in the workers' compensation line of business, a weak macroeconomic environment, a prolonged period of inadequate rates, as well as an expense ratio in excess of its peers composite. While management has implemented initiatives intended to improve underwriting results, the company's operating results will continue to be strained over the near term, given the continuing challenging market conditions and the low interest rate environment.

The ratings recognize MCIM's adequate risk-adjusted capitalization and conservative and high quality investment portfolio. The ratings also consider the equity of the residual trust managed by MCIM and it being the legal beneficiary of the trust. The equity in the trust will revert to MCIM upon satisfaction of all remaining claims obligations of the trust.

Factors that could trigger negative rating actions include a decline in MCIM's risk-adjusted capitalization that is below A.M. Best's expectations, further deterioration in its underwriting and operating results and any material deviation from the company's submitted financial projections. Key factors that may trigger positive rating actions on the company's ratings include underwriting and operating results improving and consistently performing in line with higher rated workers' compensation carriers.

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: ambest.com/ratings/methodology.

A.M. Best Company is an insurance rating and information source.

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