Insurance company

AM Best revises outlook to negative for Discovery Insurance Company

OLDWICK, NJ–(BUSINESS WIRE)–AM Best revised the outlook from stable to negative and affirmed the financial strength rating of B+ (good) and the issuer’s long-term credit rating of “bbb-” (good) from Discovery Insurance Company (Discovery) (Kinston , North Carolina).

The credit ratings (ratings) reflect Discovery’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).

The negative outlook reflects Discovery’s declining operating performance and earnings over the past year, which has led to a decline in policyholder surplus. The decline was primarily due to deteriorating underwriting results due to lower premiums written and earned due to pricing pressures resulting from increased competition from entrants to the non-standard auto insurance market in North Carolina. . Underwriting results were negatively impacted by automotive market challenges, including parts supply chain issues, labor shortages and significantly higher used car prices. While management plans to take various pricing actions to return to profitable underwriting performance, it is uncertain whether or not these actions will be sufficient to return Discovery to its historical operating profitability in the medium term. AM Best will continue to monitor the execution of management’s plans and their impact on reducing pressure on Discovery’s operational performance.

Discovery’s strong balance sheet continues to be supported by its highest level of risk-adjusted capitalization as measured by Best’s capital adequacy ratio (BCAR), stable loss provisioning trends and a appropriate reinsurance. The proper assessment of operating performance reflects key operating ratios, which are generally in line with AM Best’s non-standard automotive composite over a five- and ten-year average. The business profile rating reflects the concentration of the company’s non-standard auto insurance business in North Carolina. Marginal ERM reflects the evolution of the company’s ERM practices, which have less ability to manage pricing risk adequately and in a timely manner due to recent increased competitive pressures.

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