MAY 26, 2011 12:00 AM (EDT)
A.M. Best Affirms Ratings of GEICO and Its Members
Raymond Thomson, ARM
Senior Financial Analyst
(908) 439-2200, ext. 5621
Jeffrey Mango, CPA
Assistant Vice President
(908) 439-2200, ext. 5204
Senior Manager, Public Relations
(908) 439-2200, ext. 5378
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - MAY 26, 2011 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A++ (Superior) and issuer credit ratings (ICR) of "aaa" of Government Employees Group (GEICO) (Chevy Chase, MD) and its property/casualty members. A.M. Best also has affirmed the ICR of "aaa" as well as the debt rating of "aaa" on $150 million 7.35% senior unsecured debentures, due 2023, of the immediate parent holding company, GEICO Corporation (Wilmington, DE). The outlook for all ratings is stable. (See below for a detailed list of companies and ratings.)
The ratings reflect GEICO's superior risk-adjusted capitalization, continued strong operating performance, brand name recognition and solid national market position in the personal automobile segment. GEICO's strong operating results reflect a considerable underwriting expense advantage, driven by its direct distribution business model. In addition, the group continues to produce favorable loss experience, while benefiting from a solid stream of investment income. As a result, GEICO has generated substantial capital over the previous five-year period, which has supported steady growth in premiums and enabled it to pay significant dividends to its parent company.
The ratings also recognize the considerable resources and financial strength of GEICO Corporation's parent company, National Indemnity Company, as well as its ultimate parent, Berkshire Hathaway Inc. (Omaha, NE) [NYSE: BRKa and BRKb], whose financial profile includes approximately $164 billion of stockholders' equity at December 31, 2010, minimal debt and a long history of strong profitability. Moreover, GEICO Corporation maintains modest financial leverage and strong cash flows to fund fixed charges.
GEICO's negative rating factors include high investment leverage derived from its significant allocation of invested assets to unaffiliated equities, which could lead to fluctuation in risk-adjusted capitalization due to market swings, as evidenced by the stock market downturn in 2008. In addition, GEICO maintains a modest geographic concentration that exposes it to legislative changes and judicial decisions, as its top five states account for approximately half of its direct premiums written. However, this risk is largely mitigated by GEICO's geographic spread throughout the United States and management's proven ability to quickly adapt to changing market conditions.
The FSR of A++ (Superior) and ICR of "aaa" have been affirmed for Government Employees Group and its following property/casualty members:
- Government Employees Insurance Company
- GEICO Indemnity Company
- GEICO Casualty Company
- GEICO General Insurance Company
The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies" and "Understanding BCAR for Property/Casualty Insurers." Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.