Press Release - MAY 31, 2017
A.M. Best Revises Outlooks to Positive for Capacity Insurance Company
FOR IMMEDIATE RELEASE
OLDWICK - MAY 31, 2017
The revised outlooks to positive reflect Capacity’s improved risk-adjusted capitalization and operating performance in recent years, as Capacity ramped up its business writings, and its thus far successful execution of the operational and financial plans by the management team, with focus on writing commercial property business in Florida.
The Credit Ratings (ratings) reflect Capacity’s strong risk-adjusted capitalization, driven by moderate net underwriting leverage and low investment leverage, as well as its improved operating performance in recent years. Partially offsetting these rating factors are Capacity’s below-average five-year operating returns, geographic concentration of business, elevated expense structure and significant dependence on reinsurance.
Since Capacity’s operations currently are limited to Florida, where, in the past, severe losses from hurricanes impacted its overall profitability, underwriting efforts are focused on managing its natural catastrophe probable maximum loss. Although catastrophe risk is mitigated by a comprehensive reinsurance program, it creates a significant dependence on reinsurance for surplus protection.
Capacity’s pure loss ratios compare favorably with its peers; however, it maintains an elevated expense structure. This is reflective of high reinsurance costs and management fees paid to its managing general agent, which creates an expense disadvantage for the company.
Positive rating action is contingent upon Capacity’s ability to report consistent and sustainable operating results, while maintaining risk-adjusted capitalization. Negative rating action could occur from material decline in risk-adjusted capitalization, sustained deterioration in operating results or financial leverage at the holding company becoming excessive.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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