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A series of corrective actions have positioned GuideOne Mutual Insurance Co. and its subsidiaries to reduce future earnings volatility after the group in 2017 produced its largest consolidated net loss in at least a generation.

The GuideOne group blamed discontinued operations for $52.6 million of its $88 million net loss in 2016 and $81.6 million of its $123 million net loss in 2017. But improving results in the second half of 2017 suggest the steps employed by GuideOne are beginning to bear fruit.

The group, best known for providing insurance coverage to churches, exited personal lines in the summer of 2016, selling renewal rights to Liberty Mutual Holding Co. Inc.'s Safeco companies. A year later, it exited the portions of its senior living communities business that provides liability coverage to for-profit organizations and claims-made liability coverage to not-for-profit entities.

"The for-profit business has been very unprofitable, and we are withdrawing that line of business," the company told the Kansas Insurance Department in a July 2017 rate filing. GuideOne later blamed much of its $59.7 million in 2017 adverse reserve development to the senior living communities business.

A review of Insurance Expense Exhibit data in the GuideOne combined annual statement finds that the group generated a net loss ratio of 66.7% on the liability portion of its commercial multiperil business in 2017, up from 31.5% in 2016. GuideOne rate filings pertaining to its senior living communities book were generally submitted on the commercial multiperil line, with some specifying that they applied only to the liability portion of that business.

The group's loss ratio for the nonliability portion of the commercial multiperil business also posted an unfavorable comparison, rising to 98.1% in 2017 from 88.3% in 2016, as the group's excess property business suffered from elevated catastrophe losses.

The rate filing included an exhibit showing that the liability portion of GuideOne's senior living communities accounted for premiums on a countrywide basis of $26.8 million in 2015, with for-profit business constituting $12.5 million and not-for-profit claims-made business totaling $3.1 million. The remaining $11.2 million pertained to not-for-profit occurrence premiums.

Additional exhibits in the filing showed that experience varied in the business line, not only based on whether the insured organization had for-profit or not-for-profit status, but also on the level of care they provide. The actuarially indicated rate change for skilled facilities exceeded 100% for both types of insureds, whereas for assisted living facilities, it varied from a negative 31.8% for not-for-profit clients to a positive 36.9% for for-profit clients.

More generally, GuideOne further explained that it and "many insurers" in the senior living communities niche have been experiencing higher-than-expected losses.

CNA Financial Corp., in a report published in November 2016, provided insight on the nature and frequency of claims within its aging services book of business, which encompasses assisted living, independent living, skilled nursing and other types of facilities.

The report found, among other things, that for-profit organizations accounted for 70.1% of CNA's closed professional liability claims in its aging services business between 2011 and 2015 and 62.1% of its insured beds. The average for-profit claim amount of nearly $217,000 was approximately $17,000 higher than for not-for-profit businesses. Skilled nursing facilities accounted for 80.7% of CNA's closed claims.

GuideOne obtained a retroactive reinsurance agreement from Premia Reinsurance Ltd, effective Sept. 30, 2017, that provides an aggregate coverage limit of $240 million for for-profit senior living communities reserves from 2012 through 2016 and certain other related exposures. Backed by the likes of Kelso & Co. LP and Arch Capital Group Ltd., Premia may be best known in connection with the adverse development cover it entered in 2017 with AmTrust Financial Services Inc.

A.M. Best lowered its financial strength ratings for GuideOne Mutual and its wholly owned subsidiaries to A- from A in December 2017, citing a material downturn in their operating results for the first half of 2017. But it took note of the adverse development cover as one of the steps the new GuideOne management team had employed to address volatility.

While the group produced a net underwriting loss of $30.1 million in the third quarter of 2017, it achieved a net underwriting profit of $19.8 million in the last three months of the year. It marked the group's first profitable quarter from an underwriting perspective in two years.

Although the group's surplus slumped to $442.4 million from $516 million year over year, including the benefit of $50 million of surplus notes issued in December 2017, it said "the balance sheet remains very strong."