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FOR IMMEDIATE RELEASE
OLDWICK - MAY 16, 2019 02:01 PM (EDT)
AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Aegis Security Insurance Company (Aegis) (Harrisburg, PA). The outlook assigned to these Credit Ratings (ratings) is negative.
The rating actions reflect Aegis’ balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management. The rating actions also reflect the company’s unfavorable trend in balance sheet strength, as well as the pending bifurcation from the current ownership organization, K2 Insurance Services LLC (K2).
The assigned negative outlooks reflect the unfavorable trends in balance sheet strength, stemming from elevated growth in recent years. While risk-adjusted capitalization has remained supportive of the very strong assessment, in recent years, the company has experienced rising underwriting leverage ratios due to premium growth outpacing surplus growth. In 2018, the company experienced elevated catastrophe losses from the California wildfires, which were mitigated ultimately by subjugation right sales and capital contributions by the ultimate parent company, K2. While the management team was able to reduce the losses substantially through creative deal sourcing, the large losses following periods of elevated growth bring uncertainty to the future profitability of the business. Operationally, prior to 2018, the company reported four consecutive years of combined ratios below 100% mainly due to net investment income.
Management has implemented a number of corrective actions to improve risk management and underwriting within its book of business. These actions include enhanced modeling, exposure mitigation efforts, new underwriting restrictions and non-renewal of some higher-risk business. In May 2019, the ownership group announced the sale of majority ownership in K2 to Lee Equity Partners. This sale does not include Aegis, which will be spun off under the current owners of Patrick Kilkenny and Endevour Capital. Going forward, Aegis will continue to provide premium capacity at pre-specified levels for K2. AM Best will monitor the company’s results closely, and resolution of the negative outlooks is contingent upon the company’s ability to demonstrate a reversal of the current balance sheet strength trends, primarily the growth in underwriting leverage ratios.
This press release relates to Credit Ratings that have been published on AM 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 AM 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 AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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