The negative outlook reflects ILM’s weak underwriting results in recent years and A.M. Best’s expectations for continued operating losses over the near term as ILM faces ongoing market challenges. While ILM’s risk-adjusted capitalization supports its current ratings, challenging market conditions, lackluster underwriting results and deteriorating macroeconomic conditions have adversely impacted the group’s operating performance in recent years. The group’s poor underwriting results over the recent five-year period have been driven by large property losses, an accumulation of weather-related losses, relatively high underwriting expenses and isolated areas of adverse loss reserve development.
The affirmation of the ratings reflects ILM’s solid capitalization and strong niche market presence as a provider of insurance coverages to the forest products and building materials industries. This specialty focus provides ILM with certain sustainable competitive advantages, particularly in terms of pricing, claims adjusting and loss control. The ratings also recognize management’s recent initiatives to improve the group’s operating performance along with its conservative investment portfolio, which has produced a steady stream of income.