AM Best Revises Outlooks to Stable for Western Pacific Mutual Insurance Company, A Risk Retention Group

AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Western Pacific Mutual Insurance Company, A Risk Retention Group (WPMIC) (Littleton, CO).

The Credit Ratings (ratings) reflect WPMIC’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

The revised outlooks to stable from negative are based on AM Best’s expectation that WPMIC will see a stabilization in its key underwriting metrics as a result of the higher levels of net premiums earned that are anticipated in the coming years. The expected growth in earned premiums, which is based on the earnings schedule of the company’s 10-year home warranties, should help stabilize some of the recent volatility that has been displayed in the company’s loss and loss adjustment expense (LAE) ratio. In 2019 and 2020, the company saw increases in underwriting losses and reported pre-tax operating losses for the year as well, prompting AM Best to revise the company’s outlooks to negative from stable. The volatility in the company’s loss and LAE ratio is not only attributed to the lower amounts of earned premiums in those years, but also is associated with a higher number of losses in those years originating from Western’s national builders deductible program. Timing issues related to reimbursements for the deductibles from the builders in the deductible program have helped contribute to the deterioration in loss experience in recent calendar years. However, despite the volatility in 2019 and 2020, results have improved in 2021 and have been favorable through the first nine months of 2022. Prospectively, AM Best expects the company to maintain an adequate level of operating performance, as historically has been the case, and to maintain the supportive risk-adjusted capitalization needed for its current book of business.

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