Best’s News & Research Service - August 28, 2018 04:11 PM (EDT)
A.M. Best Downgrades Credit Ratings of Tower Bonding and Surety Company
- August 28, 2018 04:11 PM (EDT)
Oldwick //BestWire// - A.M. Best has downgraded the Financial Strength Rating to B- (Fair) from B (Fair) and the Long-Term Issuer Credit Rating to “bb-” from “bb” of Tower Bonding and Surety Company (Tower Bonding) (Old San Juan, PR). The outlook of these Credit Ratings (ratings) remains negative.
The ratings reflect Tower Bonding’s balance sheet strength, which A.M. Best categorizes as adequate, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.
The rating actions reflect a significant decline in Tower Bonding’s policyholder surplus, primarily driven by unrealized capital losses in 2017 and the continued deterioration in underwriting performance over the past five years. The deterioration in underwriting results was largely due to the company’s high underwriting expense structure, along with a sizable decline in its premium volume. The reduction in premium volume was reflective of the lower demand for criminal bonds. However, in first half of 2018, the company’s premium volume has increased for the first time in more than 10 years due to a lack of competition.
There could be additional negative rating action if there is a further decline in the operating results, or a material weakening in Tower Bonding’s risk-adjusted capitalization. Positive rating action in a form of an outlook change could occur if the company’s underwriting and operating performance stabilizes.
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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