Best’s News & Research Service - October 24, 2016 01:46 PM (EDT)
A.M. Best Revises Outlooks to Negative for Members of Safeway Insurance Group
- October 24, 2016 01:46 PM (EDT)
Oldwick //BestWire// - A.M. Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings of “a” for the members of Safeway Insurance Group (Safeway). Safeway is composed of four members focused on the non-standard auto segment that operates through a pooling arrangement with Safeway Insurance Company (Westmont, IL) as the lead company. The other members are Safeway Insurance Company of Alabama, Inc. (Westmont, IL), Safeway Insurance Company of Georgia (Alpharetta, GA), and Safeway Insurance Company of Louisiana (Lafayette, LA).
The revised outlooks reflect Safeway’s deteriorating underwriting results in recent years, mainly driven by plummeting gas prices in conjunction with a higher frequency and severity of auto claims. The group is concentrated in the non-standard auto sector, which subjects its earning to changing market conditions and rising claim costs. Net underwriting losses reflect the increasing loss and loss adjustment expense ratio in recent years, which compares unfavorably with similarly A.M. Best-rated peer companies and companies in the private passenger non-standard auto composite. Management has responded with rate actions to counter thinning underwriting margins and A.M. Best expects underwriting results to improve in the near future. Additionally, surplus growth has been tempered over the latest five-year period, primarily driven by stockholder dividends paid up to its parent company, Safeway Financial Holding Company.
Safeway’s results rely heavily on net investment income and fee income, which collectively contribute to consistent positive operating cash flows. The Credit Ratings (ratings) reflect Safeway’s strong risk-adjusted capitalization, reflective of a high quality investment portfolio and relatively low underwriting leverage measures, solid liquidity measures, favorable operating returns, as compared with the industry, and local market expertise geographically spread through multiple distribution channels.
Further negative rating actions could ensue if underwriting performance does not improve to commensurate with the current rating level, or if there is a significant decline in risk-adjusted capitalization.
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.
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