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FOR IMMEDIATE RELEASE
OLDWICK - APRIL 29, 2014 10:54 AM (EDT)
A.M. Best has upgraded the financial strength rating to B++ (Good) from B+ (Good) and issuer credit rating to "bbb" from "bbb-" of MGA Insurance Company, Inc. (MGA) (Dallas, TX). The outlook for both ratings has been revised to stable from positive.
The positive rating actions primarily reflect MGA's profitable underwriting performance and improved risk-adjusted capitalization in 2013, which is due to the reduced Florida personal injury protection (PIP) fee litigations. In addition, MGA's net income continues to remain positive driven by a steady stream of favorable net investment income and capital gains that has partially offset underwriting losses over the last five years. The company's unfavorable underwriting performance was partially due to inadequate rates in early years and increased Florida PIP fee litigations that occurred in 2012. In response, management continues to focus on improving its operating performance through various risk management strategies including rate adjustments and refining its underwriting criteria. The company maintains a conservative investment portfolio and moderate underwriting leverage measures.
These positive rating factors are partially offset by MGA's unfavorable underwriting performance in three of the last five years and geographic concentration of risk. While the company operates in several states, a majority of the company's business is conducted in Florida and Texas, which exposes its results to regulatory, judicial and economic concerns. This was particularly evidenced in 2012 by the increased Florida PIP fee litigations that resulted in sizable underwriting losses and prior year adverse loss reserve development. To partially mitigate this risk, management has been de-emphasizing Florida's exposure along with its significant rate increase.
Negative rating pressure may occur if MGA's operating performance deteriorates and/or there is a significant decline in its overall risk-adjusted capital strength as measured by Best's Capital Adequacy Ratio (BCAR). Any future positive rating actions are contingent upon the continuation of MGA's favorable operating performance and surplus growth while maintaining adequate capitalization and moderate underwriting leverages.
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.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.