AM Best Revises Outlooks to Negative for Ontario Insurance Company
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Ontario Insurance Company (Ontario) (Shortsville, NY).
The Credit Ratings (ratings) reflect Ontario’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
Ontario’s risk-adjusted capitalization, which remains assessed as strongest, as measured by Best’s Capital Adequacy Ratio (BCAR), did weaken somewhat in 2022 with a further decline at Sept. 30, 2023, due to underwriting losses. These losses were the group’s largest in the past 10 years and resulted in a negative pre-tax operating loss and overall net loss. Changes to the group’s reinsurance program, which resulted in higher net retentions, also contributed to the weakening of risk-adjusted capital. However, despite this deterioration, the group's balance sheet assessment remains at the very strong level, reflective of its favorable underwriting leverage as compared with the commercial property composite, adequate reserve development and strong liquidity measures, as well as a conservative investment portfolio that produces consistent levels of net investment income. Those positive factors are partially offset by the company's somewhat elevated reinsurance dependence as a single-state property writer and lack of financial flexibility.
The change in outlooks to negative from stable results from Ontario’s reported operating losses, resulting from underwriting losses, as reflected by a 2022 combined ratio of 117.6%, its highest in five years, and a nine-month combined ratio of 121.7% at Sept. 30, 2023. Nevertheless, the operating performance assessment remains as strong given its history of reporting positive results over the past 10 years. The underwriting losses were due to several factors, including a large restaurant fire loss, several homeowner fire losses and a late winter snowstorm, coupled with record levels of inflation due to supply chain issues; increased material and labor costs; and an increase in the company’s per-risk retentions.
The business profile assessment of limited reflects the company’s geographic and product concentration as a property writer in New York. Lastly, Ontario’s ERM practices remain appropriate and are in line with its risk profile, with a focus on exposure management and pursuing rate adequacy.
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