AM Best has revised the outlooks to stable from positive and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of FHM Insurance Company (FHM) (Orlando, FL).

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

The outlook revisions to stable from positive reflect a prospective view that FHM’s ERM remains marginal as oversight and foundational underwriting actions taken by management to improve the overall operating performance have not taken hold fully to benefit the company’s financial condition, operating performance and business profile.

Recent accident years’ loss experience appears to be improving, but with a relatively shrinking book of business, the expense ratio remains quite high. Net investment income, from a necessarily conservatively invested portfolio to support negative underwriting cash flows, has not been able to grow surplus organically. Persistent pressure on workers’ compensation premium rates has challenged profitability for several years; predictive analytics appears to be helping selection, but FHM does not seem to be growing a sustainably profitable level of premium to support its current expense mix of expenses, small ceding commission to LUBA Casualty Insurance Company (LUBA), implementation expense of a new operating system, and policyholder dividends.

Negative rating action could occur if there is a material deterioration in FHM’s risk-adjusted capitalization that would impact its current balance sheet strength assessment adversely. Negative rating action also could occur if the company’s operating performance measures were to continue to trend poorly and fall short of AM Best’s expectations. However, positive rating action could occur if FHM’s ERM improvements from the installation of the board of directors of LUBA, its controlling partner, appear sustainable and result in a prolonged improvement in the company’s operating performance with modest reserve volatility.

This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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