A.M. Best Downgrades Ratings of Wisconsin Reinsurance Corporation and Its Subsidiary

A.M. Best Co. has downgraded the financial strength rating to B+ (Good) from B++ (Good) and issuer credit ratings to "bbb-" from "bbb" of Wisconsin Reinsurance Corporation and its wholly-owned subsidiary, 1st Auto & Casualty Insurance Company (1st Auto), together known as Wisconsin Reinsurance Group (WRG). Both companies are domiciled in Madison, WI. The outlook for all ratings has been revised to negative from stable.

The rating actions reflect WRG's poor underwriting results over the recent five-year period, primarily driven by an accumulation of weather-related losses, large property losses, increased frequency private passenger automobile claims and an unresponsive reinsurance program. While WRG's risk-adjusted capitalization supports its current ratings, weak underwriting results and challenging macroeconomic conditions have adversely impacted the group's operating performance in recent years.

Although management is formulating several strategic initiatives to improve the group's underwriting performance, successful execution of WRG's business plans has yet to materialize into profitable results. As a result, A.M. Best remains concerned with the group's volatile underwriting performance and potential further erosion of capital through 2012 as WRG continues to face ongoing exposure to property- and weather-related losses amid challenging macroeconomic conditions.

WRG would need to improve its capitalization and its operating performance before the negative outlook likely would be removed. There will be additional pressure on the rating if the negative operating results experienced in 2011 continue in 2012, resulting in a loss of surplus and further deterioration in capitalization.

The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; and "Rating Members of Insurance Groups." Methodologies 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 © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.