A.M. Best Assigns Ratings to First Canadian Insurance Corporation and Millennium Insurance Corporation

OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has assigned financial strength ratings of A- (Excellent) and issuer credit ratings of “a-” to First Canadian Insurance Corporation (FCIC) and Millennium Insurance Corporation (MIC) (both of Sherwood Park, Alberta). Both companies are wholly owned subsidiaries of Firstcan Management Inc. The outlook for all ratings is stable.

The ratings of FCIC reflect its excellent risk-adjusted capitalization, positive operating earnings and generally increasing premium production. Risk-adjusted capitalization is strong and enhanced by the continued profitability of its creditor operations and generally favorable investment performance. FCIC has minimal exposure to real estate linked assets. FCIC has demonstrated continued growth and captured extensive market share as a provider of creditor life and disability products on finance contracts in the automobile and recreational vehicle industry within Canada.

Offsetting these positive rating factors is FCIC’s high exposure to equity market volatility, preferred stocks and single large investment concentrations in its investment portfolio; challenges to generate consistent new premium production; and the ability to expand within its automotive distribution market. Approximately 60% of FCIC’s investment portfolio is invested in equities (both common and preferred shares), which is high relative to peer companies, and exposes it to heightened volatility in its investment results. However, the majority of the equity securities are in highly rated financial institutions within Canada that have a solid track record of financial stability. As strictly a provider of vehicle creditor life and disability products, new insurance premium is directly tied to the sales of automobile and recreational vehicles, which can be significantly impacted by unfavorable economic conditions. Since FCIC already has considerable penetration in its current market niche, the opportunity to grow new premium at historically high levels will be a challenge going forward.

The ratings of MIC recognize its strong risk-adjusted capitalization, favorable operating results, management’s highly specific underwriting expertise and established market profile as a vehicle service contract provider. Partially offsetting these positive factors is the company’s elevated investment leverage as a percentage of equity, as well as its elevated unearned premium reserve leverage due to the long duration of vehicle service contracts.

MIC maintains a focused underwriting discipline, which has consistently produced favorable pure loss ratios for the latest five-year period. Consistent underwriting income as well as favorable net investment income also has contributed to MIC’s solid capital position. This positive trend in underwriting and pretax operating results has continued through the first quarter of 2010.

These factors are somewhat offset by the high unearned premium leverage from vehicle service contracts, which extend several years. The company also is heavily weighted in common and preferred equities, which contributes to elevated investment leverage as a percentage of equity. As a result, a certain degree of variability is expected in investment income as well as realized and unrealized capital gains.

MIC specializes in providing vehicle service contracts and automotive mechanical warranties through the same distribution channel as FCIC. Through its affiliation, with FCIC, MIC benefits from the marketing and distribution platform provided by these dealerships. As with most automobile warranty and vehicle service writers, loss reserves are generally not material, with the bulk of liabilities in the unearned premium reserves of policies offering multi-year coverage. These are held to cover warranty claims as they develop over the multi-year coverage of extended warranties. MIC also is a direct writer of personal lines automotive, property and commercial errors and omission insurance, primarily in the province of Alberta, although this book of business is much smaller.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including Insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.