The ratings reflect Wolverine’s favorable gross underwriting performance, its well-established market presence in Michigan and Indiana and its improving investment performance. Offsetting these positive rating factors is the company’s marginal capital position, driven by above average leverage ratios and below average net operating performance in comparison to its industry composite. The ICR outlook is driven by Wolverine’s suppressed earnings and continued sub-industry performance.
While Wolverine has a favorable gross underwriting performance due to its aggressive efforts to reduce its risk concentrations through agency management and spreading its geographic exposure, along with price realignment, rate increases and insurance to value initiatives, these improvements have failed to translate into substantial net underwriting gains that would have decreased leverage ratios and substantially added to capital at a rate greater than current premium growth.
The company’s predominantly property business continues to subject Wolverine’s surplus to wind/hail and winter storm losses and unexpected loss frequency spikes that, as seen in 2007 and over the past five years, have caused limited surplus growth. This volatility is only exacerbated by the company’s above average expense ratio, high underwriting leverage, as well as its lessened, but continued geographic concentration. Wolverine has attempted to mitigate this exposure by securing reinsurance coverage, which lowers its probable maximum loss (PML) somewhat, but the risk level remains above 10% of adjusted surplus. However, the company has generally proven able to produce positive operating returns as a personal lines writer despite the uncertainty of weather conditions inherent within its region. Wolverine’s results, while less volatile, remain below those of the industry composite.
For Best’s Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.