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FOR IMMEDIATE RELEASE
OLDWICK - FEBRUARY 06, 2015 09:36 AM (EST)
A.M. Best has revised the outlook to positive from stable and affirmed the issuer credit rating (ICR) of "a" for SureTec Insurance Company (SIC). A.M. Best has also affirmed SIC's financial strength rating (FSR) of A (Excellent). The outlook for the FSR is stable. Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the ICR of "a-" of SureTec Indemnity Company (SINC), a subsidiary of SIC. The outlook for SINC's ratings is stable. All companies are headquartered in Houston, Texas.
The outlook revision to positive for SIC reflects A.M. Best's view that management's conservative underwriting approach will continue to deliver strong operating results and that the company's risk-adjusted capitalization will remain supportive of its risk profile.
The ratings of SIC recognize its superior capitalization, historically strong operating performance driven by profitable underwriting results, sustained favorable reserve development and the financial flexibility provided by its parent, SureTec Financial Corp. These positive rating factors are partially offset by SIC's elevated loss ratios in 2011 and 2012, which were driven by contract bond losses (particularly in the Florida contract bond market, which the company exited in 2011), its significant premium concentration within Texas and California, the execution risk associated with geographic and product expansion and the somewhat elevated underwriting expense ratio relative to its peer composite.
The ratings of SINC reflect its supportive level of risk-adjusted capitalization, the historical profitability of its contractors license bond (CLB) book, which was assumed from SIC in 2013, and the implicit support of SIC. These positive rating factors are partially offset by SINC's concentration of premium writings in California CLBs, its short operating history (operations commenced in 2013) as a stand-alone entity and the execution risk associated with product expansion initiatives given current market conditions. The outlook reflects A.M. Best's expectation that results will be favorable on a stand-alone basis and that the company will continue to receive management and financial support from its parent.
Factors that could result in upward movement for SIC's ratings include continued strength in operating earnings and return on revenue measures sustained over a period of time. Accordingly, this would enable SIC to generate additional organic surplus growth while strengthening its overall risk-adjusted capitalization.
Factors that could result in downward rating movement for SIC include a sustained weakening in its operating earnings due to deteriorating underwriting performance or material weakening in its overall risk-adjusted capitalization.
Negative rating actions on SINC's ratings could occur if underwriting or operating performance differs materially from A.M. Best's expectations or there is a considerable deterioration in risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR). The ratings also may be negatively impacted if the company's strategic importance to its parent no longer warrants rating enhancement.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
This press release relates to rating(s) 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 visit A.M. Best's Ratings & Criteria Center.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.