On Friday, A.M. Best said that the “A-minus” financial strength ratings of members of Meadowbrook Insurance Group, Inc. remain under review with negative implications—a status that has been in place since Oct. 19, 2012—in spite of actions management has taken to shore up capital and fix pockets of unprofitable business in the interim.

The ratings will remain under review as A.M. Best continues to evaluate Meadowbrook’s corrective actions, the Oldwick, N.J.-based rating agency said, noting that actions taken by management in the past few months include capital enhancements through the monetization of investments, quota-share reinsurance (surplus relief) and the termination of certain underperforming books of business.

In October last year, Best reacted to an announcement by Meadowbrook that it expected to increase loss estimates for 2011 and prior accident years by $31.4 million in the third quarter, placing the ratings for the Meadowbrook subsidiaries—Star Insurance Company, Century Surety Company, Savers Property and Casualty Insurance Company, ProCentury Insurance Company, Williamsburg National Insurance Company and Ameritrust insurance Corporation—under review.

In early November, when Meadowbrook officially reported third-quarter results, the company said the boost in prior-year losses would be $42.9 million, and also said that unprofitable programs representing $75.9 million in 2012 would be terminated.

In December, Meadowbrook announced that it entered into a quota-share reinsurance arrangement with Swiss Re, ceding roughly $200 million of premiums on selected business. Effective Dec. 31, Meadowbrook transferred 50 percent of its unearned premium on the selected business to Swiss Re, and it also started ceding 25 percent of direct written premium on the selected books on Jan. 1, 2013.

Reacting to Friday’s A.M. Best announcement, Meadowbrook issued a statement quoting Robert S. Cubbin, Meadowbrook President and Chief Executive Officer, who said the company continues to cooperate and work with A.M. Best to evaluate the impact of the corrective actions taken to date.

“We believe these actions position us to a return to profitability and strengthen our current capital position,” Cubbin said in the statement.

He added: “We continue to achieve rate increases across our core business. The termination of unprofitable business is progressing as expected. We believe the previously announced quota-share agreement provides us the flexibility to take advantage of the firming market and rebuild our historic track record of stable underwriting results in an efficient and effective manner.”

In mid-February, Meadowbrook reported net income of $11.7 million, or 23 cents per share, for 2012 compared to $43 million, or 82 cents per share, for 2011, with the prior-year reserve charges and Superstorm Sandy losses impacting the 2012 bottom line. But statutory surplus jumped $79 million to $426.3 million at year-end, compared to $347.3 million as of Sept. 30, 2012.

Cubbin noted that the quota-share, together with $50 million of gains embedded in Meadowbrook’s investment portfolio, had helped to enhance surplus, and that loss reserves were stabilizing.

Gross written premiums for the year were $1.1 billion, and the full-year combined ratio was 111.4, including 10 points from the third-quarter reserve charge.

Looking ahead, Meadowbrook offered the following earnings guidance for 2013 in conjunction with its year-end earnings report:

• Expected gross written premiums: $970-$990 million
• Expected net operating income (excluding quota-share impact): $35-$40 million
• Expected net operating income (including quota-share impact): $27.4-$32.4 million
• Expected combined ratio (excluding quota quote-share impact): 98.0-99.0

Sources: A.M. Best; Meadowbrook