AM Best Downgrades Credit Ratings for Members of Columbia Lloyds Companies

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)--
AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” (Good) from “a-” (Excellent) of Columbia Lloyds Insurance Company and MDOW Insurance Company, which are collectively referred to as Columbia Lloyds Companies (Columbia Lloyds). Both companies are domiciled in Houston, TX. The outlook of the FSR has been revised to stable from negative, while the Long-Term ICR is negative.

The Credit Ratings (ratings) reflect Columbia Lloyd’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 downgrade of the ratings reflects increased volatility in Columbia Lloyd’s operating results, particularly in recent periods and continuing through third quarter 2024. The group’s operating performance has deviated from historical norms influenced by weather-related losses, inflationary pressures and changes in the quota share program. While management continues to execute corrective actions inclusive of aggressive rate increases, underwriting initiatives and weather mitigation strategies, volatility of key performance metrics remains high. The negative outlook of the Long-Term ICR reflects continued pressure on the adequate operating performance assessment should actual results materially deviate from the plans communicated to AM Best. The outlook further considers the potential for shifting enterprise risk mitigation strategies, via changes in the reinsurance structures that no longer effectively insulate the group’s capital from unexpected weather events.

The very strong balance sheet strength assessment reflects Columbia Lloyds’ strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), although weakened from prior periods following capital erosion in the most recent two years and continuing through third quarter 2024. The limited business profile is marked by Columbia Lloyds’ geographic concentration primarily in Texas and Oklahoma, which exposes earnings and surplus to weather-related events, regulatory risk and competitive market pressures. While ERM is viewed as appropriate for the group’s risk profile that includes active monitoring of key risks and prudent reinsurance protection, pressure exists due to the recent increase in weather-related losses.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.