A.M. Best Downgrades Issuer Credit Rating of Members of Wisconsin County Mutual Group

A.M. Best has downgraded the Long-Term Issuer Credit Rating
(Long-Term ICR) to “bbb” from bbb+ and affirmed the Financial Strength
Rating (FSR) of B++ (Good) of Community Insurance Corporation and Wisconsin
County Mutual Insurance Corporation, collectively referred to as the Wisconsin
County Mutual Group (WCMG). The outlook of the FSR has been
revised to negative from stable while the outlook for the Long-Term ICR
remains negative. Both companies are domiciled in Madison, WI.

The ratings reflect WCMG’s balance sheet strength, which A.M. Best
categorizes as strong, as well as its marginal operating performance,
limited business profile and appropriate enterprise risk management.

The rating actions and FSR outlook revision reflect WCMG’s volatility in
underwriting performance and decline in policyholders’ surplus over the
most-recent three-year period. Underwriting losses resulted from adverse
loss and LAE reserve development from lawsuit verdicts on several
prior-year other liability and workers’ compensation claims.

WCMG’s positive rating factors primarily are driven by its net
investment income, which partially offset underwriting shortfalls during
the recent period. Net investment income is derived from the group’s
diversified investment portfolio, which has generated a steady stream of
investment income and favorable realized and unrealized capital gains.
Although management adheres to strict loss control and risk management
services that mitigate potential loss and benefits from Wisconsin’s tort
laws that cap large settlements, the group remains susceptible to
civil-rights cases that are litigated in federal courts where there are
no limits on jury verdicts.

Partially offsetting these positive rating factors is the group’s
volatile underwriting results and negative operating results that led to
three consecutive years of declines in policyholders’ surplus. As a
result, the group’s five-year average pre-tax and total returns on
revenue and equity are negative and compare unfavorably with the
commercial casualty composite. In addition, operating earnings are
dampened by dividend requirements that have averaged 7.2 points on the
combined ratio over the last five years. Furthermore, while policy
limits and reinsurance curb the group’s overall federal claim exposure,
significant legal defense expenses associated with these claims have
dramatically increased loss adjustment expenses during this period.

This press release relates to Credit Ratings that have been published
on A.M. Best’s website. For all rating information relating to the
release and pertinent disclosures, including details of the office
responsible for issuing each of the individual ratings referenced in
this release, please see A.M. Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and A.M. Best press releases, please view Guide
for Media – Proper Use of Best’s Credit Ratings and A.M. Best Rating
Action Press Releases.

A.M. Best is the world’s oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

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