A.M. Best has downgraded the financial strength rating to B (Fair) from B+ (Good) and the issuer credit rating to "bb" from "bbb-" of Michigan Commercial Insurance Mutual (MCIM).
The outlook for both ratings is negative. Concurrently, A.M. Best has withdrawn the ratings due to management's request to no longer participate in A.M. Best's interactive rating process.
The rating actions resulted from the continued deterioration in MCIM's operating performance and risk-adjusted capitalisation through Q1 of 2014.
Although the management has taken actions to diversify its operations over the years, the recent expansion has resulted in a strain on the company's underwriting controls, has led to sizable underwriting losses and created the need for continuous re-underwriting actions.
Despite significant corrective actions intended to improve financial performance, the company's operating results and capital position could continue to be strained over the mid-term, given expected restructuring expenses, challenging market conditions and the low interest rate environment.
Additionally, the company remains exposed to the execution risk of recent remediation actions, according to A.M. Best’s analysis.
The ratings consider the company's conservative investment allocations and the equity of the residual trust managed by MCIM as well as its role as the legal beneficiary of the trust.
The equity in the trust will revert to MCIM upon satisfaction of all remaining claims obligations of the trust.
