Best Downgrades Nationwide (Florida) Ratings to ‘B’ – Negative Outlook

A.M. Best Co. has downgraded the financial strength rating (FSR) to “B-” (Fair) from “B” (Fair) and the issuer credit rating (ICR) to “bb-” from “bb” of Nationwide Insurance Company of Florida (NICOF), which is headquartered in Columbus, Ohio. Both ratings also have a negative outlook.

“The downgrading of NICOF’s ratings is the result of the substantial decline in capitalization after a 100-year hurricane, despite a sizeable internal reinsurance agreement with its parent, Nationwide Mutual Insurance Company and coverage purchased from the Florida Hurricane CAT Fund,” said Best. Both companies are members of the Nationwide Group.

In addition Best noted that “expected losses from a 100-year hurricane event increased due to its reevaluation of catastrophe exposure.” Such an event would substantially deplete NICOF’s capital to the point that “a significant re-capitalization plan would be required to satisfy ongoing policyholder obligations.”

However, Best did indicate that it believes Nationwide Mutual would “satisfy any legitimate claims that NICOF could not.” That view may be tempered somewhat by the legal separation between Nationwide Mutual and NICOF and the uncertainty in the marketplace at this time, which also explains the negative out look on the Company’s ratings

In conclusion Best observed that, “despite the potential for deterioration in NICOF’s stand-alone capitalization the risk to Nationwide Mutual’s reputation if it does not provide support to Florida policyholders is the basis for the ratings.”

Best doesn’t expect to further lower the ratings, unless, it warned “there is significant deterioration in the Florida market.” In addition Best made it plain that “Nationwide Mutual’s failure to provide ongoing support to NICOF would call into question management’s commitment to all policyholders and would likely result in a downgrade of the current FSR of ‘A+’ (Superior) and ICRs of ‘aa-‘ of Nationwide Mutual, Nationwide and all of the remaining group member companies.”

Source: A.M. Best