A.M. Best Co. announced this morning that it downgraded the financial strength rating of Nationwide Insurance Company of Florida to "B-minus" (fair) from "B" (fair).
The outlook for the rating is negative, the Oldwick, N.J.-based rating agency said, citing potential consequences of a 100-year hurricane to support the downgrade action.
Despite a sizable internal reinsurance agreement with its parent, Nationwide Mutual Insurance Company of Columbus, Ohio, and coverage purchased from the Florida Hurricane Catastrophe Fund, the Florida company would suffer a substantial decline in capitalization in the event of a 100-year hurricane, Best said in a statement.
"A significant re-capitalization plan would be required to satisfy ongoing policyholder obligations," the rating agency said in its announcement, adding, however, that despite this capital shortfall, "it is A.M. Best's belief that Nationwide Mutual would satisfy any legitimate claims that [Nationwide Insurance Company of Florida] could not."
Best also downgraded the issuer credit rating of the Florida company to "double-b-minus" from "double-b."
Best said the negative outlook reflects the legal separation between Nationwide Mutual and the Florida company, but added that unless there is significant deterioration in the Florida market, the rating agency does not expect to lower the ratings of the Florida company any further.
"Nationwide Mutual's failure to provide ongoing support…calls into question management's commitment to all policyholders and would likely result in a downgrade" of the parent company's financial strength rating, which is currently "A-plus" (superior), Best said.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.