On Friday, A.M. Best Co. announced that the rating agency removed the “under review” status of “A-minus” financial strength ratings for Meadowbrook Insurance Group and its subsidiaries.

The status of “under review with negative implications” had been in place since Oct. 19, 2012.

A.M. Best said the decision to affirm the rating took into consideration some of the remedial actions taken by the group management since its third-quarter 2012 earnings announcement and reserve charge, which included the monetization of investments, quota-share reinsurance (surplus relief) and the termination of certain underperforming books of business.

Although the rating agency lifted the “under review status,” it has assigned a negative outlook to the financial strength ratings of all subsidiaries, and to various issuer credit ratings.

Best said the negative outlook reflects the execution risk for Meadowbrook in meeting its business plans in the near term.

Discussing the affirmation, A.M. Best said that in addition to the previously described remedial actions, it also considered management’s guidance in 2013 and the group’s expectation to restore profitability and capital via retained earnings, as well as a recent capital raise that occurred on March 18, 2013.

After completion of the private offering, $70 million of capital was contributed to Meadowbrook. This allowed for risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR) to return to more historical levels and allows for a cushion during periods of modest operating profitability, Best said.

Best also said it will continue to monitor Meadowbrook’s capitalization to ensure that it remains within an acceptable range for its current ratings, and that it will also watch the impact of recent adverse loss experience on the newer programs on Meadowbrook’s overall operating performance, particularly the workers’ compensation business.

Best expects that no material adverse development will be recorded going forward. In addition, operating performance should be positively impacted by the recent rate increases on certain business classes.

Still, the rating agency said that positive rating actions for Meadowbrook are unlikely in the near term, adding that key factors that could result in negative rating actions include deterioration in the financial strength of its ultimate parent, a significant or sustained decline in its risk-adjusted capitalization, further material adverse development in its reserves or prolonged unprofitable underwriting and operating results.

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.

The FSR of A- (Excellent) and ICRs of “a-” have been affirmed for the following Meadowbrook Insurance Group, Inc. subsidiaries:

• Star Insurance Company
• Century Surety Company
• Savers Property and Casualty Insurance Company
• ProCentury Insurance Company
• Williamsburg National Insurance Company
• Ameritrust Insurance Corporation