A.M. Best Downgrades Rhode Island’s Providence Mutual

The Providence Mutual Fire Insurance Co. has been dealt a financial strength rating downgrade from A.M. Best.

A.M. Best said its decision to downgrade the insurer’s financial strength rating to “B++” (Good) from “A-” (Excellent) comes even as the insurer has a “very strong balance sheet.”

Factors that shaped the decision include: Providence Mutual’s “marginal operating performance, limited business profile and appropriate risk management.”

According to A.M. Best, the downgrades (including similar action with its long-term issuer credit rating) involve a business profile “that has consistently challenged operating performance and restricted surplus growth.”

The ratings agency noted that Rhode Island-based Providence Mutual in previous years had a book of business that included a large amount of coastal exposure susceptible to weather events, which produced “material losses.” The insurer correctly responded by lowering those risks and diversifying its book of business to include more customers in the business owner and personal auto lines segments.

But as A.M. Best noted, “the personal auto line has proven difficult due to on-boarding undesirable risks and insufficient pricing.” As a result, those risks have hurt Providence Mutual’s performance, though the insurer has tried to correct this with actions such as rate increases, targeted non-renewals and stricter underwriting guidelines.

Problems remain, however, according to A.M. Best.