AM Best has affirmed the financial strength rating of ‘B+’ (Good) and the long-term issuer credit rating of ‘bbb-’ (Good) for Star Mutual Risk Retention Group (Star Mutual), with a revised outlook to ‘negative’ from ‘stable’. Best says the affirmation reflects Star Mutual’s adequate balance sheet strength, adequate operating performance, limited business profile, and appropriate enterprise risk management. The agency says the negative outlook on the company’s risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio (BCAR), is due to the company’s rapid growth trajectory, which has significantly exceeded projections. Driven largely by rapid expansion in polices in force and entry into new jurisdictions, premium volume grew by over 150 per cent in 2024, significantly outpacing surplus growth. While the growth has enhanced the company’s market presence, it has also strained capital adequacy in the near term, raising concerns about the management of growth within its volume of risk insured and risk tolerance, says Best. AM Best believes execution risk remains elevated, despite forward-looking projections indicating improvement. Best states that negative rating actions may occur in the near term if there is deterioration in balance sheet strength metrics. Negative ratings may also occur if unexpected or material variances from projections persist. The agency also says, although unlikely, positive rating actions could occur if surplus growth exceeds growth in premiums to better support results in an improvement in overall balance sheet metrics.
