Best’s News & Research Service - February 23, 2015 03:09 PM (EST)
A.M. Best Revises Issuer Credit Rating Outlook to Negative for American Access Casualty Company
- February 23, 2015 03:09 PM (EST)
Oldwick //BestWire// - A.M. Best has revised the outlook for the issuer credit rating (ICR) to negative from stable and affirmed the financial strength rating (FSR) of B (Fair) and the issuer credit rating of "bb+" of American Access Casualty Company (AAIC) (Chicago, Il). The outlook for the FSR remains stable.
The ratings reflect AACC's marginal risk-adjusted capitalization, as a result of unfavorable net underwriting leverage measures, driven by continued double-digit premium and exposure growth, adverse loss reserve development and sizable dividends paid to its parent, New AA Holdings, LLC, over the past five years. The ratings further reflect AACC's geographic concentration of risk, principally in Illinois and Texas, limited product offerings with writings consisting entirely of minimum limit non-standard automobile coverages and its expense structure driven by high commission costs relative to its industry composite. The negative outlook reflects A.M. Best's concern that continued double-digit premium growth may place pressure on AACC's thin risk-adjusted capitalization.
Negative rating actions or outlook changes could occur if AACC's highly leveraged policyholders' surplus and risk-adjusted capitalization continue to decline as a result of deteriorating operating profitability and continued dividend payments to its parent, New AA Holdings, LLC.
Although not anticipated over the near-term, positive rating actions or outlook changes could occur over the intermediate term, if AACC moderates premium growth, reduces its elevated leverage ratios, sustains underwriting and operating profitability; increases risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio, strengthens policyholders' surplus and if its loss reserves develop adequately.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Catastrophe Analysis in A.M. Best Ratings
- Equity Credit for Hybrid Securities
- Insurance Holding Company and Debt Ratings
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for Property/Casualty Insurers
This press release relates to rating(s) 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 visit A.M. Best's Ratings & Criteria Center .
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