A.M. Best Co. placed the ratings of Meadowbrook Insurance Group Inc. and its subsidiaries under review with negative implications Friday.

The Oldwick, N.J.-based rating agency, which has A- (excellent) financial strength ratings for subsidiaries of the Southfield, Mich.-based firm, said the under-review status reflects the parent company's preliminary announcement Thursday that its third quarter 2012 results will be adversely impacted by an increase in its net ultimate loss estimates for 2011 and prior accident years.

Best said the negative implications “reflect the reasonable likelihood that the ratings will be downgraded based on this announcement, worse than expected operating results in 2012, the reduction in risk-adjusted capitalization levels and earnings prospects going forward.”

Best said the ratings will remain under review pending further discussion between it and the company's management “regarding various capital-raising initiatives that are being explored, as well as an in-depth view surrounding the degree and nature of the charges taken, any other action plans implemented by management and (Meadowbrook Insurance Group's) ability to stem another instance of adverse development if it should arise.”

In addition to the units' financial strength rating, also placed under review with negative implications were the Meadowbrook units' a- issuer credit ratings and the parent company's bbb- issuer credit rating.

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On Thursday, Meadowbrook said it expects to record a pre-tax expense of $31.4 million or 14 combined ratio points, in this year's third quarter, which is related to an increase in net ultimate loss estimates for 2011 and prior accident years. It also expects to report $7.9 million, or 3.5 combined ratio points, of higher-than-expected storm losses in the quarter.

The company said the increase in prior-year reserves estimate primarily reflects continued higher than expected incurred loss activity in accident years 2009, 2010 and 2011.

Meadowbrook President and CEO Robert S. Cubbin said in a statement, “We are very disappointed with our 2012 calendar year results. However, we believe the rate increase and our underwriting actions taken since 2009 position us to return to profitable and stable underwriting results.”

He could not immediately be reached for comment on the A.M. Best action.