Meadowbrook Insurance Shares Plunge, Traders Point at Late-Friday Downgrade by AM Best

A.M. Best Co. has downgraded the financial strength rating (FSR) to B++ (Good) from A- (Excellent) and issuer credit ratings (ICR) to “bbb+” from “a-” for the subsidiaries of Meadowbrook Insurance Group, Inc. MIG (Southfield, MI) [NYSE: MIG], which operates under an intercompany reinsurance pooling agreement. A.M. Best also has downgraded the ICR to “bb+” from “bbb-” for MIGI. The outlook for the FSR has been revised to stable from negative, while the outlook for the ICRs is negative. The rating downgrades take into consideration MIGI's second quarter 2013 earnings announcement and the weaker than anticipated results due in large part to $21.4 million of prior year adverse loss reserve development and $8.2 million of pre-tax losses (on prior years) the result of adverse reinsurance arbitration. In the second quarter of 2013, MIGI reported a net operating loss of $4.4 million. Meadowbrook responded with: Robert S. Cubbin, Meadowbrook President and Chief Executive Officer, commented: "We were very disappointed by today's decision by A.M. Best to downgrade our rating to B++ (stable).  We have been demonstrating progress towards our goal of a return to stable and profitable underwriting results.  As we discussed in our recent earnings release and conference call, our prior year loss reserves on both continuing and discontinuing business on the majority of our reserve categories have remained fairly stable on a year-to-date basis, with one exception in a discontinued territory within the California workers' compensation business.  We have been targeting and achieving overall rate increases that have been in excess of the loss ratio trends and have demonstrated improvement in our underwriting results in the most recent accident years.  Rate increases continue to accelerate in 2013.  As a result, we will seek to make arrangements with an A rated insurance company to issue policies in those programs and lines of business for which such a rating is required. The Meadowbrook Board of Directors is undertaking a review of strategic alternatives and has engaged Willis Capital Markets & Advisory in connection with its evaluation.