AM Best has revised its outlook for Guild Insurance from positive to stable due to its high and volatile combined operating ratio and highly competitive market conditions.

It has affirmed Guild’s financial strength rating of A- (Excellent) and long-term issuer credit rating of a-.

The ratings agency says the a- credit rating reflects Guild’s strong risk-adjusted capitalisation, good operating performance and established business profile in Australia’s allied health sector.

“The ratings also acknowledge Guild’s prudent reserving practices, robust reinsurance program and high-quality investment portfolio,” AM Best says.

A relatively high and volatile combined operating ratio, compared with the industry and Guild’s own operating target, partially offset the positive ratings.

“Even though the company has a track record of positive operating results, overall earnings in recent years largely have been driven by investment income rather than underwriting profits,” AM Best says.

Downgrading the outlook to stable reflects AM Best’s view that Guild’s competitive position and underwriting results will remain “under pressure” in the short term due to “extremely competitive market conditions”.

AM Best remains concerned over Guild’s strategic and business expansion risks in the commercial space.

“Due to the challenging operating environment in recent years, premium growth has been constrained and is lower than the company’s forecasts. As a result, the anticipated reduction in its expense ratio has not materialised.

“Moreover, the company has been experiencing poor technical performance in its industrial specialty risk portfolio.”

AM Best acknowledges that Guild has now taken a less expansionary stance and is focusing on strategic and remedial actions to improve its underwriting profitability.

The agency says it will downgrade Guild’s ratings if there is a “significant deterioration” in its risk-adjusted capitalisation, along with a downward trend in underwriting results.