News Column

A.M. Best Downgrades Issuer Credit Rating of Southern General and Its Affiliate, GreenStar Insurance Company

February 17, 2014

A.M. Best Co. has downgraded the issuer credit rating (ICR) to "bb" from "bb+" and affirmed the financial strength rating (FSR) of B (Fair) of Southern General Insurance Company (SGIC).

Concurrently, A.M. Best has downgraded the ICR to "bb" from "bb+" and affirmed the FSR of B (Fair) of GreenStar Insurance Company (GreenStar), an affiliate of SGIC. The outlook for the FSRs has been revised to negative from stable, while the outlook for the ICRs is negative. Both entities are domiciled in Marietta, GA.

The rating actions reflect SGIC's continued operating losses in 2012 and for the first nine months of 2013, which resulted in combined and operating ratios that compared unfavorably with results for the private passenger non-standard composite. Additionally, risk- adjusted capitalization declined as a result of continued poor operating performance. The ratings also considered a significant positive accounting adjustment to policyholders' surplus relating to premium receivables from the company's managing general agent, The Insurance House, Inc.

Operating losses resulted from a trend of underwriting losses driven by increased claim severity leading to adverse prior year loss reserve development, settlement of a large extra-contractual claim from a prior accident year, increased competitive market conditions and elevated expense structure.

In response to declining operating trends, SGIC has taken aggressive actions to reduce expenses, optimize territorial rates and launch a new point-of-sale technology. Partially offsetting these negative rating factors are SGIC's adequate risk-adjusted capitalization, long-standing agency relationships and local market presence.

The rating actions on GreenStar reflect its changing profile, uncertainty in successfully marketing private passenger non- standard automobile coverage to metropolitan areas and the company's poor operating performance in recent years.

The negative outlook on the ratings of SGIC and GreenStar acknowledges their negative operating trends and the uncertainty regarding successful implementation of initiatives to return both companies to operating profitability.

More information:

ambest.com

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