AM Best cuts Star Mutual ratings, keeps negative outlook

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AM Best cuts Star Mutual ratings

Highlights

AM Best downgraded Star Mutual’s Financial Strength Rating to B- from B+ and Long-Term Issuer Credit Rating to bb- from bbb-, maintaining a negative outlook.
Premium volume is projected to grow 64% in 2025 after 156% in 2024, pressuring risk-adjusted capitalization as capital growth lags premium growth.
Combined ratio reaches a record high in 2025 due to elevated loss and expense ratios, with adverse loss reserve development seen into Q1 2026, increasing downgrade risk.

Downgrade driven by capital strain

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

AM Best says the ratings reflect Star Mutual’s weak balance sheet strength, alongside adequate operating performance, a limited business profile and marginal enterprise risk management. The agency says the rating action follows a continued mismatch 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 because premium growth repeatedly exceeds projections while capital growth falls short.

Underwriting performance and outlook risks

The negative outlook reflects what AM Best describes as material deviations during 2024 and 2025 from management’s earlier projections. 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 insurer’s rapid growth phase.

The agency says Star Mutual has strengthened its underwriting framework in recent years by adding rating factors aimed at reducing exposure to high-risk drivers and operators, while continuing to enhance its proprietary underwriting platform. Still, AM Best says risk-adjusted capitalization remains under pressure and operating performance shows signs of deterioration, leaving the company exposed to further negative rating action if underwriting losses or projection misses persist.

Our earlier article on KBRA’s preliminary ratings for the RRE 31 Loan Management DAC transaction outlined the structure of a new €400 million euro-denominated cash flow CLO backed by a diversified pool of 143 corporate obligors. We highlighted how the agency’s assessment leaned on credit enhancement and coverage tests, as well as portfolio risk characteristics such as a target K-WARF of 2500 (around a B weighted-average profile), alongside the manager’s scale across European CLOs.

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