AUGUST 24, 2018 11:08 AM (EDT)
A.M. Best Affirms Credit Ratings of Members of GEICO and GEICO Corporation
FOR IMMEDIATE RELEASE
OLDWICK - AUGUST 24, 2018 11:08 AM (EDT)
The ratings reflect GEICO’s balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, very favorable business profile and appropriate enterprise risk management.
The ratings reflect GEICO’s robust capitalization, consistent operating profitability, brand name recognition and pre-eminent 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 generally favorable loss experience while benefiting from a steady stream of investment income, and significant realized and unrealized capital gains in its investment portfolio given the favorable performance of equity markets in more recent years. As a result, GEICO’s substantial capital growth over the most recent five-year period has comfortably supported the steady growth in premiums.
Furthermore, these ratings continue to benefit from explicit support provided by GEICO Corporation’s parent company, National Indemnity Company (NICO), as well as implicit support from its ultimate parent, Berkshire Hathaway Inc. (Berkshire) [NYSE: BRKa and BRKb], whose financial profile included approximately $347.4 billion of stockholders’ equity at March 31, 2018, modest debt and a long history of strong profitability. Moreover, GEICO Corporation maintains minimal financial leverage and sufficient cash flows to fund fixed charges.
These positive rating factors are offset partially by 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.
Downward rating pressure could result should risk-adjusted capitalization decrease significantly from an adverse earnings trend due to underwriting or investment losses. A change in the group’s relationship with Berkshire or NICO, which would result in a diminution of the business profile, also could create downward rating pressure.
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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