AM Best Downgrades Credit Ratings of Westminster American Insurance Company; Maintains Under Review With Negative Implications Status
AM Best has downgraded Westminster American Insurance Company's (WAIC) Financial Strength Rating from A to A-, and its Long-Term Issuer Credit Rating from “a+” to “a-”. These ratings remain under review with negative implications. The downgrade is primarily due to WAIC's removal from the Nodak Insurance Group pool, following its sale back to original owners by NI Holdings, Inc. (NODK) effective June 30, 2024. WAIC's business profile was lowered to due to concentrated commercial property risks and variability in operating results over the past five years. Despite a strong balance sheet and appropriate ERM, further downgrades are possible if WAIC's future performance isn't consistent with current ratings.
- WAIC's balance sheet strength remains very strong with robust risk-adjusted capitalization.
- ERM is considered appropriate, matching the company's risk profile.
- WAIC's Financial Strength Rating was downgraded from A to A-.
- Long-Term Issuer Credit Rating was downgraded from “a+” to “a-”.
- Business profile was lowered to due to concentrated commercial property risks.
- Operating performance was downgraded to adequate from strong due to variability over the past five years.
- Ratings remain under review with negative implications, indicating potential for further downgrades.
Insights
The downgrade in the credit ratings of Westminster American Insurance Company (WAIC) by AM Best signals a potential weakening in the company's financial standing and operational outlook. This change primarily stems from WAIC's removal from the Nodak Insurance Group pool, which previously accorded it certain financial advantages. Post-removal, WAIC's business profile has been downgraded to 'limited' from 'neutral,' indicating a narrower scope of operations and higher exposure to risks. Retail investors should be particularly cautious as the downgrade may lead to higher borrowing costs and reduced investor confidence. Despite WAIC's balance sheet strength being described as 'very strong,' the variability in its operating performance over the past five years and increased direct pure loss ratios raise concerns about its future profitability.
In the short term, investors can expect some level of volatility in WAIC's financial health as it transitions to reporting standalone results. Long-term impacts will largely depend on the company's ability to stabilize its operations and return to more predictable financial performance. Investors should monitor the upcoming financial reports closely for any signs of improvement or further deterioration.
The downgrade by AM Best and the maintained under review with negative implications status highlight increased uncertainties surrounding WAIC's business model and operational stability. WAIC's concentration in commercial property risks, particularly in mid-Atlantic states, exposes it to significant weather-related events, which could further impair its financial results. The removal from the Nodak pool eliminates certain financial efficiencies WAIC previously enjoyed, leading to a more vulnerable standalone business profile.
For retail investors, it is essential to understand that the insurance market is highly sensitive to changes in credit ratings, as these directly affect an insurer's market reputation and policyholder confidence. The downgrade could result in decreased policyholder retention and difficulties in attracting new business, impacting WAIC's revenue streams in the long term. Monitoring AM Best's further assessments and WAIC's quarterly reports post third-quarter 2024 will be critical in evaluating the company's trajectory.
The ratings reflect WAIC’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
WAIC’s ratings were downgraded primarily as a result of its removal from the Nodak Insurance Group (Nodak) pool. In 2020, WAIC was acquired by NI Holdings, Inc. (NODK: Nasdaq) and subsequently added as a member of the Nodak group via a pooling agreement. The acquisition gave WAIC access to financial efficiencies provided through a larger-scaled organization. However, effective June 30, 2024, WAIC was sold by NI Holdings, Inc. back to its original owners, and has since been removed as a member of Nodak.
Consequently, WAIC’s business profile assessment was lowered to limited from neutral. The company is concentrated from a product standpoint predominately writing commercial property risks in several mid-Atlantic states, which leaves overall results vulnerable to potentially frequent and severe weather-related events. Further, given variability in its operating results over the most recent five-year period, the operating performance assessment was lowered to adequate from strong. WAIC’s key operating return metrics (combined/operating ratios, pre-tax and total returns) over the past five-years largely reflect its portion of the Nodak pool. Accordingly, its direct pure loss ratios are more indicative of its performance outside of the pool and have been climbing over that same period. The balance sheet strength is still considered to be very strong, given the company’s overall level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), its conservative investment philosophy and appropriate reinsurance protection. Lastly, AM Best considers the company’s ERM to be appropriate with risk management capabilities commensurate with its risk profile.
The ratings will remain under review with negative implications until AM Best can assess WAIC’s prospective financial and operational plans under new ownership. The company is expected to begin reporting its own results apart from the pool in the third quarter of 2024. Should WAIC’s future results and/or business plan on a standalone basis, independent of the pool, not be consistent with its current rating, the negative implications could result in additional downgrades.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
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Lauren Magro
Financial Analyst
+1 908 882 2082
lauren.magro@ambest.com
Joseph Burtone
Director
+1 908 882 1678
joseph.burtone@ambest.com
Christopher Sharkey
Associate Director, Public Relations
+1 908 882 2310
christopher.sharkey@ambest.com
Al Slavin
Senior Public Relations Specialist
+1 908 882 2318
al.slavin@ambest.com
Source: AM Best
FAQ
Why were the ratings of Westminster American Insurance Company (WAIC) downgraded?
What is the new Financial Strength Rating of Westminster American Insurance Company (WAIC)?
What is the new Long-Term Issuer Credit Rating of WAIC?
What impact does WAIC's removal from the Nodak pool have?
When will WAIC begin reporting its own results apart from the Nodak pool?
