AM Best cuts Star Mutual ratings, keeps negative outlook

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AM Best cuts Star Mutual ratings

Highlights

AM Best downgrades Star Mutual's Financial Strength Rating to B- from B+ and Long-Term Issuer Credit Rating to bb- from bbb-, both with negative outlook.
Star Mutual's premium volume surges 156% in 2024 and another 64% in 2025, pressuring risk-adjusted capitalization and outpacing surplus growth.
The combined ratio reaches a historic high in 2025 due to elevated loss and expense ratios, with adverse reserve development persisting into Q1 2026.

Rating downgrade follows capital strain

As reported by AM Best, the insurer’s Financial Strength Rating is lowered to B- from B+, while its Long-Term Issuer Credit Rating is reduced to bb- from bbb-, with both outlooks remaining negative.

AM Best says the ratings reflect Star Mutual’s weak balance sheet strength, adequate operating performance, limited business profile and marginal enterprise risk management. The agency says the action follows continued misalignment between the company’s risk appetite and its capital position.

Premium volume grows about 64% in 2025 after 156% growth in 2024, outpacing surplus accumulation and pressuring risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio. AM Best also points to execution risk around management’s forward-looking initiatives, given a recurring pattern of premium growth exceeding projections while capital growth falls short.

Underwriting performance and outlook risks

The negative outlook reflects what AM Best describes as material deviations from management projections during 2024 and 2025. In 2025, the combined ratio rises to the highest level in the company’s operating history, driven by higher than expected loss and expense ratios.

Management attributes part of that deterioration to a disruption in a federal database during the first half of 2025 that the company relies on for underwriting and risk selection. AM Best says adverse loss reserve development emerges in 2025 and continues through the first quarter of 2026, raising broader concerns about business written during the company’s growth phase.

AM Best says Star Mutual has strengthened its underwriting framework in recent years by adding rating factors aimed at higher-risk drivers and operators, and continues to enhance its proprietary underwriting platform. Even so, the agency says risk-adjusted capitalization remains under pressure and operating performance shows signs of deterioration, leaving the effectiveness of those controls under continued review.

Further negative rating action may occur in the near term if underwriting losses persist at levels that no longer support an adequate operating performance assessment, or if material variances from projections continue. A positive rating action is considered unlikely, but could occur if surplus growth exceeds exposure growth and improves overall balance sheet strength metrics.

KBRA’s credit review of the City of Los Angeles Solid Waste Resources Revenue Bonds focused on how recently implemented fee adjustments could strengthen debt service coverage and reduce reliance on General Fund subsidies. Our earlier article noted that the AA rating and Stable Outlook were supported by pledged fee revenues and bondholder protections, while future upgrades or downgrades would hinge on sustained self-sufficiency and fee adequacy.

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