AM Best revises outlook to negative for Discovery Insurance Company

OLDWICK, NJ, July 26, 2022–(BUSINESS WIRE)–AM the best revised the outlook to negative from stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of Discovery Insurance Company (Discovery) (Kinston, NC).

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

The negative outlook reflects the decline in Discovery’s operating and earnings performance over the past year, which has led to a decline in policy backlog. This decrease is primarily due to the deterioration in underwriting results as a result of the decline in premiums written and earned due to pricing pressures from increased competition among market participants in the North Carolina non-standard auto insurance market. Underwriting results have been negatively impacted by challenges in the auto market, which include supply chain issues for parts, labor shortages and significant increases in used car prices. While management plans to take various pricing actions to return to profitable underwriting performance, it is uncertain whether these actions will be sufficient to return Discovery to its historical operating profitability over the medium term. AM Best will continue to monitor the implementation of management plans and their impact on alleviating pressure on Discovery’s operating performance.

Discovery’s strong balance sheet continues to be supported by a stronger level of risk-adjusted capitalization as measured by Best’s capital adequacy ratio (BCAR), consistent loss reserve trends and an adequate reinsurance program. Adequate assessment of operating performance reflects key operating ratios, which are generally consistent with AM Best’s non-standard vehicle composition on a five- and 10-year average basis. The business profile rating reflects the company’s focus on the non-standard auto insurance business in North Carolina. Marginal ERM reflects the company’s evolving ERM practices, which have less ability to manage price risk adequately in a timely manner from recent increasing competitive pressures.

This press release relates to the Credit Ratings that are published on AM Best’s website. For all rating information relating to the release and related disclosures, including details of the office responsible for issuing each of the individual ratings referred to in this release, please see AM Best’s Last assessment activity Web page. For additional information regarding the use and limitations of Credit Score opinions, please see Guide to Best Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Ratings, Best’s Preliminary Credit Ratings and AM Best’s press releases, please see Guide to the proper use of Best ratings and reviews.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by AM Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.

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Kevin Dorsey
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