A.M. Best downgrades Wawanesa Mutual

The company’s auto lines, especially in Ontario and Alberta, are posing challenges to its earnings

Although A.M. Best has downgraded the credit ratings of Winnipeg-based The Wawanesa Mutual Insurance Company, the rating agency has also changed its outlook on the firm to stable from negative.

Wawanesa Mutual currently holds a financial strength rating (FSR) of “A,” down from “A+,” and a long-term issuer credit rating (ICR) of “a+,” down from “aa-.”

The downgrades reflect the firm’s weakened operating performance over the medium term, with current underwriting and operating ratios, as well as those for the five-year and 10-year mark, trailing industry averages.

Wawanesa Mutual is experiencing pricing pressure in its auto segment, which makes up 60% of the company’s total net written premium. This pressure is especially felt in Ontario and Alberta, in which car insurance is heavily regulated and premiums make up more than 50% of the total book net premium.

A.M. Best predicts that Wawanesa Mutual will continue to feel pressure on its earnings in the near term for its auto lines in those two particular provinces.

Results on property lines also have been challenged in the Prairie provinces because of severe storm losses, states the rating agency’s announcement.

“Wawanesa Mutual is making strides to improve pricing through rate increases, product segmentation and product reform,” the announcement notes. “Augmenting these efforts are the new underwriting and claims systems recently put in place.”

The company’s credit rating could fall further in the near to medium term if it is unable to correct its underwriting profitability issues; incurs material losses in its risk-adjusted capitalization; is unable to contain the group’s exposure to catastrophe events within its underwriting footprint; or has substantial adverse reserve development relative to its peers, as well as the industry’s averages, according to A.M. Best.

However, positive rating movement could occur with sustained and consistent profitable underwriting results that complement the company’s already sustained operating profitability.

In addition, A.M. Best released the rating results for Wawanesa Mutual’s subsidiaries. Winnipeg-based The Wawanesa Life Insurance Company maintains its FSR of “A” and its long-term ICR of “a” with an outlook that is stable. San Diego, Calif.-based Wawanesa General Insurance Company has had its FSR of “A-” and its long-term ICR of “a-” affirmed. Its outlook remains negative.

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