AM Best has downgraded the financial ratings of PrimeOne Insurance Company, based in Dallas, Texas. The company, a subsidiary of PrimeOne Insurance Group, saw its Financial Strength Rating drop from B+ (Good) to B- (Fair). Its Long-Term Issuer Credit Rating was also lowered from “bbb-” (Good) to “bb-” (Fair). The outlook for these ratings has changed from stable to negative.
This downgrade reflects concerns about PrimeOne’s financial health. AM Best described the company’s balance sheet strength as adequate, but noted issues with its operating performance, business profile, and enterprise risk management.
The downgrade was prompted by a noticeable decline in PrimeOne’s financial metrics during the fourth quarter of 2024. The company experienced a significant erosion of surplus and a drop in risk-adjusted capitalization levels. The primary cause of this decline was an increase in incurred but not reported (IBNR) reserves due to differing opinions among actuaries. This surplus fell by nearly 29% in just the last quarter of the year.
As a result, PrimeOne missed its financial projections for the end of 2024, which, combined with a growing premium base, led to a sharp decline in its risk-adjusted capitalization, as measured by AM Best’s Capital Adequacy Ratio.
While AM Best does not expect the issues with actuarial opinions and IBNR reserves to persist, the current capital level and the significant gap between actual and projected results suggest that the company’s overall financial strength aligns more closely with an adequate assessment.
PrimeOne’s operating performance has been rated as marginal, largely due to inconsistent underwriting results over the past few years. However, the company has seen some improvement in investment income. Although its five-year average return-on-revenue and return-on-equity ratios lag behind its peers, there are expectations for better performance in the future, thanks to new profitability initiatives. The company has also taken measures to control premium growth by reducing its involvement in certain programs, aiming to maintain a conservative surplus relative to its premiums.
In terms of its market presence, PrimeOne is seen as a small player in the insurance sector, primarily operating in three states: Utah, Michigan, and Nevada. The company focuses on commercial property, general liability, and liquor liability insurance, particularly for the hospitality industry.
Lastly, PrimeOne’s enterprise risk management is rated as marginal compared to its risk profile, although the company has made some progress in improving its ERM framework. However, these improvements have not yet had a significant impact on its results.
This downgrade from AM Best highlights the challenges PrimeOne Insurance Company faces as it works to stabilize its financial standing and improve its performance in a competitive market.