Ratings agency AM Best has downgraded the financial strength rating of Golden Insurance Company, a Denver-based risk retention group, to C++ (Marginal) from B- (Fair). The outlook of these ratings is negative.
AM Best has since withdrawn the ratings as Golden has requested to no longer participate in the the ratings process.
The ratings reflect Golden's balance sheet strength, which AM Best categorises as weak, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.
Rating downgrades are also driven by Golden's adverse reserve development in the general liability business, which has led to surplus deterioration in recent years.
The surplus declines have placed added stress on underwriting leverage ratios and risk-adjusted capitalisation.
In addition, Golden’s five-year average pre-tax and total returns on revenue and equity are negative and compare unfavourably with the composite. Further, the company has somewhat mitigated the stress on its balance sheet through revising the quality and quantity of its reinsurance. Additionally, the company has enacted multiple underwriting changes in earlier years to prevent these issues from reoccurring.
AM Best also noted that the underwriting changes to the general liability business appear to show early favourable results. However, the adverse development from earlier years has continued to flow into the more recent years’ results, and has led to significant underwriting and operating losses.
The negative outlook reflects the continued uncertainty around the prior year development and the potential for any additional adverse development. The general liability business results are somewhat mitigated by a profitable book of warranty business, for which the company identifies as its core business, AM Best said.
AM Best, Ratings, RRG, Golden Insurance Company, North America