AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “bbb+” (Good) from “a-” (Excellent) of Rockingham Insurance Company and its pooled affiliates: Rockingham Casualty Company and Rockingham Specialty, Inc. The outlook of the FSR has been revised to stable from negative while the Long-Term ICR is negative. All companies are domiciled in Harrisonburg, VA, and collectively are referred to as Rockingham Group.

These Credit Ratings (ratings) reflect Rockingham Group’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.

The downgrade of the ratings reflects progressive erosion of the group’s capital position, which has weakened key balance sheet metrics. This position is driven by above-average net premium and reserve leverage metrics that continue to pressure the current balance sheet assessment. Despite the issuance of a $15 million surplus note, the group’s capital has declined due to volatility in underwriting results. Following surplus declines in 2021 and 2022, capital erosion of slightly more than 21% in 2023 was driven by continued elevated underwriting losses, influenced primarily by weather-related losses and inflationary pressures. As part of the group’s capital improvement strategy, Rockingham Group recently completed in the first quarter of 2024 its exit from its underperforming commercial business. Additional corrective actions include mitigating reinsurance dependency and exposure and concentration management, as well as strengthened reserving practices. Collectively, these efforts may improve underwriting leverage and ultimately strengthen the balance sheet. However, the potential for future adverse loss reserve development remains a rating concern.

The negative outlook on the Long-Term ICR reflects ongoing pressure on the neutral business profile assessment given the heightened volatility in operating results in recent years. Operating performance in 2023 was particularly challenged by above average weather-related losses, severe fire losses, continued adverse loss reserve development and inflationary pressures. Also, the expense ratio was skewed in 2023 by the group’s exit of commercial business and higher reinsurance costs against a lower premium base that drove this ratio upward. Management’s strategies to improve performance include emphasis on rate adequacy and tighter underwriting guidelines in the group’s ongoing personal and specialty segments. While Rockingham Group is currently pursuing additional capital management strategies to improve its overall capital position, execution risk exists. Accordingly, the negative outlook further reflects continued pressure on the balance sheet strength assessment given the group’s elevated leverage metrics and ongoing adverse reserve development trends.

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