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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JANUARY 31, 2014 12:00 AM (EST)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of a of SureTec Insurance Company (SIC), a subsidiary of SureTec Financial Corp. The outlook for both ratings is stable. Concurrently, A.M. Best has assigned an FSR of A- (Excellent) and an ICR of a- to SureTec Indemnity Company (SINC), a recently established subsidiary of SIC. The outlook assigned to these ratings is stable. All companies are headquartered in Houston, TX.
The ratings of SIC recognize its superior capitalization, historically strong operating performance driven by profitable underwriting results and sustained favorable reserve development, as well as the financial flexibility provided by its parent. These positive rating factors are partially offset by SICs elevated loss ratios in 2011 and 2012, which were driven by contract bond losses particularly in the Florida market (the company exited the Florida contract bond market in 2011), its significant premium concentration within Texas and California, the execution risk associated with geographic and product expansion and the somewhat elevated underwriting expense ratio relative to its peer composite. The outlook reflects A.M. Bests expectation that managements conservative underwriting approach should deliver strong operating results.
The ratings assigned to SINC reflect its supportive level of risk-adjusted capitalization, the historical profitability of its contractors license bond (CLB) book, which was assumed from SIC in 2013, and the implicit support of SIC. These positive rating factors are partially offset by the concentration of premium writings in California CLBs, SINCs short operating history (operations commenced in 2013) as a stand-alone entity and the execution risk associated with product expansion initiatives given current market conditions. The outlook reflects A.M. Bests expectation that results will be favorable on a stand-alone basis and that the company will continue to receive management and financial support from its parent.
Factors that could result in downward rating movement for SIC include a sustained weakening in its operating earnings due to deteriorating underwriting performance or material weakening in its overall risk-adjusted capitalization.
Factors that could result in upward movement for SICs ratings include an improvement in its operating earnings and resulting return on revenue measures sustained over a period of time. Accordingly, this would enhance SICs ability to generate additional organic surplus growth while strengthening its overall risk-adjusted capitalization.
Negative rating actions on SINCs ratings could occur if underwriting or operating performance differs materially from A.M. Bests expectations or there is a considerable deterioration in risk-adjusted capitalization as measured by Bests Capital Adequacy Ratio (BCAR). SINCs ratings also may be negatively impacted if its strategic importance to SIC no longer warrants rating enhancement.
The methodology used in determining these ratings is Bests Credit Rating Methodology, which provides a comprehensive explanation of A.M. Bests rating process and contains the different rating criteria employed in the rating process. Bests Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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