A.M. Best Downgrades Credit Ratings of California Capital and Subsidiaries

A.M. Best has downgraded the Financial Strength Rating to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Rating to “a-” from “a” of California Capital Insurance Co. and its wholly owned subsidiaries: Eagle West Insurance Company, Nevada Capital Insurance Co. and Monterey Insurance Co.

All companies comprise Capital Insurance Group and are domiciled in Monterey, Calif., except where specified. The outlook of these ratings is stable.

Capital is a regional property/casualty insurer serving the Western U.S. that is privately held, and employee-owned. The company provides personal, home and auto insurance in California, Nevada, Oregon, and Washington. It provides commercial and agricultural insurance in California, Nevada, Oregon, Washington and Arizona.

The rating actions reflect a material decline in Capital’s capitalization, resulting from a downturn in underwriting results that were driven by variability in the loss reserve development on prior accident years and coupled with the inherent execution risk that comes with strategic operating changes, according to A.M. Best.

“Geographic concentration risk in California subjected the group’s property catastrophe reinsurance program to be heavily loss-impacted by the active wildfire season. In addition, it exposes the group to competitive market pressures and a challenging legislative and regulatory landscape,” A.M. Best stated.

The ratings reflect Capital’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management. Capital’s ratings are supported by the group’s solid risk-adjusted capitalization and historically solid operating performance of the companies that comprise the group, along with the group’s diversified mix of business, local market presence and strong agency relationships.

“The positive rating factors are further supported by management’s adherence to sound operating fundamentals, as evidenced by its conservative underwriting guidelines and low investment leverage,” A.M. Best stated. “Additionally, operating results have benefited from steady investment income over the last five years.”