Best’s News & Research Service - August 26, 2022 01:33 PM (EDT)
AM Best Removes From Under Review With Negative Implications and Affirms Credit Ratings of Members of Vault Insurance Group
- August 26, 2022 01:33 PM (EDT)
Oldwick //BestWire// - AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Vault E&S Insurance Company (Little Rock, AR) and Vault Reciprocal Exchange (St. Petersburg, FL), collectively referred to as Vault Insurance Group (Vault). The outlook assigned to these Credit Ratings (ratings) is negative.
The ratings reflect Vault’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings were placed under review with negative implications in April 2022 due to a material deterioration in its risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), combined with significant volatility in operating performance.
Vault reported material capital erosion during the last nine months of 2021, which was influenced by significant weather losses (e.g., Hurricane Ida), large liabilities losses and reserve strengthening. Full-year results also were influenced by Winter Storm Uri losses and one-time costs related to the separation from Allied World Assurance Company Holdings, Ltd. Subsequent to the ratings being placed under review with negative implications, management implemented effective capital management initiatives that returned risk-adjusted capitalization to the strongest level, as measured by BCAR. These actions included a $35 million capital contribution in the form of a surplus note to the reciprocal exchange and the purchase of increased catastrophe reinsurance coverage at the June renewal. The overall balance sheet strength assessment also considers loss reserve development, which has been favorable through the first six months of 2022, underwriting leverage positions that are currently comparable with the composite averages and a conservative investment portfolio.
The negative outlooks reflect continued operating volatility, which has led to consistent underwriting and pretax operating losses on a statutory and adjusted basis since inception. The adjusted basis includes the benefit of earned member contributions from the reciprocal exchange, which are not treated as premium within statutory accounting. The outlooks consider the impact of the recently implemented reinsurance program. While it is anticipated that the reinsurance program will reduce the severity of losses, underlying challenges remain that management is addressing through several corrective actions. The impact of these actions will be monitored as it relates to underlying results. Vault also is expected to manage anticipated growth effectively as it pertains to risk accumulations, the influence of current weather patterns and financial performance.
The group continues to expand its geographic footprint rapidly with writings in numerous states. Expansion through admitted and nonadmitted products account for significant premium growth over the past few years. The group remains focused on personal property, with Florida currently its top state. Management is expected to continue to enrich its enterprise risk management program as it grows in new territories, leaning on prudent practices to appropriately account for the risks associated with its growing portfolio.
This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.