22 May 2023Analysis

AM Best affirms Conifer ratings

AM Best has affirmed the financial strength rating of B+ and the long-term ICRs of bbb- of Conifer Insurance Company (CIC) and White Pine Insurance Company (White Pine), subsidiaries of Conifer Holdings, a publicly traded property/casualty insurance holding company.

Concurrently, AM Best has affirmed the Long-Term ICR of “bb-” (Fair) of CHI. The outlook of these credit ratings is stable. All companies are domiciled in Troy, MI. Collectively, these companies are referred to as Conifer Insurance Group (Conifer).

The ratings reflect Conifer’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, neutral business profile and marginal enterprise risk management (ERM).

The rating affirmations also reflect the challenges facing the group and management’s ongoing attempts to cull its book and stem losses caused by underperforming segments of business. The ratings and outlooks consider the strategic initiatives and corrective measures recently taken by management by way of retroactive reinsurance to help minimise the impact of future loss reserve development and its effect on the balance sheet. The ratings also take into consideration the additional capital raise and monetization from the completed sale of its managing general agency, VSRM Insurance Agency. In addition, in fourth-quarter 2022, the group executed on a significant loss portfolio transfer (LPT) reinsurance agreement, which provided cover for $20 million of adverse reserve development protection for accident years 2019 and prior.

Conifer’s balance sheet strength assessment of adequate includes its very strong level of risk -adjusted capitalisation, as measured by Best’s capital adequacy ratio, offset by what has been persistent, material adverse loss reserve development and the group’s inability to grow surplus organically via retained earnings. The balance sheet strength assessment has also been impacted by the limited financial flexibility and profile of the parent company, CHI.

AM Best said that Conifer’s operating performance was assessed as marginal, as underwriting and operating results remain well below expectations. Although Conifer has dedicated its efforts toward refining its niche business segments, exiting problematic regions, pruning underperforming business and refining its pricing, these actions have not translated into meaningful improvement to date. ERM capabilities remain marginal as well as the organisation has been plagued by substantial reserving issues and its inability to organically grow surplus since inception.

The stable rating outlooks reflect AM Best’s expectation that Conifer’s business profile, with continued focus on its expertise in niche lines, coupled with the aforementioned actions, should benefit underwriting and operating results prospectively.