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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - MARCH 22, 2007 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 has also affirmed the ICR of "aaa" and debt rating of "aaa" of the existing debt securities of the immediate holding company, GEICO Corporation (Wilmington, DE). The outlook for all ratings is stable. (See below for a detailed list of companies.)
The ratings reflect GEICO's superior financial strength, strong operating performance, brand name recognition and market position as one of the top five personal automobile writers in the United States. These strengths are partially offset by significant stockholder dividend payments to its parent, high investment leverage, as well as exposure to potential regulatory issues in several of its larger states.
GEICO's strong operating results reflect a considerable underwriting expense advantage, which is driven by its direct distribution business model, as well as its favorable loss experience over the previous five-year period. Overall returns also benefit from its consistent and stable stream of investment income. When combined with its capital gains, GEICO has generated significant capital over the previous five-year period, which has supported steady growth in net premiums written and enabled it to pay substantial dividends to its parent.
The ratings also recognize the considerable resources and financial strength of GEICO's ultimate parent, Berkshire Hathaway Inc. (Nebraska) [NYSE: BRKa and BRKb], whose financial profile includes approximately $108 billion of stockholders' equity, minimal debt and a long history of strong profitability. Moreover, GEICO Corporation maintains modest financial leverage and strong cash flows to fund fixed charges.
In 2006, GEICO's dividend payments to its parent totaled $2.7 billion and resulted in a moderate decline in surplus and risk-adjusted capitalization. GEICO also maintains high investment leverage derived from its significant allocation of invested assets to unaffiliated common stock. However, its strong risk-adjusted capitalization and historic success in managing its portfolio partially mitigate this risk. 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 one-half of its direct premiums written. However, this risk is largely mitigated by its geographic spread throughout the rest of the country and management's proven ability to quickly adapt to changing market conditions.
The FSR of A++ (Superior) and ICRs of "aaa" have been affirmed for Government Employees Group and its following property/casualty insurance operating subsidiaries:
- Government Employees Insurance Company
- GEICO Indemnity Company
- GEICO Casualty Company
- GEICO General Insurance Company
The following debt rating has been affirmed:
GEICO Corporation-
- "aaa" on $150 million of 7.35% senior unsecured debentures, due 2023
Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors.