JULY 28, 2017 12:45 PM (EDT)
A.M. Best Affirms Credit Ratings of the Members of GEICO and GEICO Corporation
FOR IMMEDIATE RELEASE
OLDWICK - JULY 28, 2017 12:45 PM (EDT)
The ratings reflect GEICO’s superior risk-adjusted capitalization, favorable operating performance, brand name recognition and preeminent national market position in the personal automobile insurance segment. GEICO’s solid 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 steady stream of investment income. As a result, GEICO’s substantial capital growth over the most recent five-year period has comfortably supported the steady growth in premiums.
All ratings also recognize the considerable resources and financial strength of GEICO Corporation’s parent company, National Indemnity Company (NICO), as well as its ultimate parent, Berkshire Hathaway Inc. (Berkshire) [NYSE: BRKa and BRKb], whose financial profile included approximately $292.9 billion of stockholders’ equity at March 31, 2017, modest debt and a long history of strong profitability. Moreover, GEICO Corporation maintains minimal financial leverage and sufficient cash flows to fund fixed charges.
Partially offsetting rating factors include GEICO’s high investment leverage derived from its significant allocation of invested assets to unaffiliated equities, which could lead to fluctuations in its risk-adjusted capitalization due to market swings or potential stock market downturns. In addition, GEICO maintains a modest geographic concentration that exposes it to legislative changes and judicial decisions, as its top five states account for slightly more than 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.
A.M. Best believes that the members of GEICO are well-positioned at their current rating levels. However, if either deteriorating underwriting results or a financial market downturn causes risk-adjusted capital to decline significantly, negative rating pressure could be evident.
The ratings of GEICO Marine reflect its supportive risk-adjusted capitalization, historical ocean marine specialty niche expertise and the implicit financial support currently provided by GEICO Corporation. Berkshire remains the ultimate parent of GEICO Marine. The ratings also recognize GEICO Marine’s significant quota share participation with NICO and explicit commitment provided by Berkshire and similarly under GEICO, for which GEICO Marine receives rating enhancement.
The ratings of GEICO Marine may come under pressure if capitalization weakens; if its operating performance trends do not improve; or if the company’s role/importance within the GEICO organization changes. The ratings could see positive movement from an improved earnings trend that leads to further capital appreciation without excessive growth.
The FSR of A++ (Superior) and the Long-Term ICRs of “aaa” have been affirmed for the following members of Government Employees Group:
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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