OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of Virginia Surety Company, Inc. (Virginia Surety) (Chicago, IL). The outlook for both ratings is stable.
The affirmations reflect Virginia Surety’s supportive risk-adjusted capitalization, continued trends in overall profitability and its leadership position in the extended warranty market. The company also benefits from its extensive product database, strong administrative capabilities and the ability to integrate its products and services across a broad client distribution channel.
These positive rating factors are offset by a history of substantial dividend payments to The Warranty Group (the immediate parent company) and the inherent credit risk associated with ceding significant portions of the business to non-rated, unauthorized captive reinsurers. The credit risk is somewhat mitigated by the use of collateral through letters of credit and funds held on recoverable balances. The ratings also take into consideration the unlimited guarantee and indemnification provided by National Indemnity Company for the run-off of all discontinued non-warranty business written prior to 2006.
The stable outlook considers A.M. Best’s expectation of continued profitability in the core warranty business and the maintenance of supportive capitalization. The outlook is also contingent on The Warranty Group maintaining conservative financial leverage and liquidity. These ratings are also applied to Virginia Surety’s branch offices located in New Zealand and Canada.
Virginia Surety and its affiliated companies are the largest underwriters of consumer extended warranties worldwide. Underwriting activities include coverage for extended warranty programs on automobiles, household appliances, consumer electronics, credit card enhancement programs and nonstructural home warranty.
Potential upward rating movement could result from continued profitability in the core warranty business that exceeds the industry composite, improvement in risk-adjusted capital levels and the ability to expand distribution partnerships. Triggers that could result in a downgrade of Virginia Surety’s ratings are a decline in risk-adjusted capitalization, waning parental support, excessive dividend levels, operating performance falling markedly short of A.M. Best’s expectations, deterioration in loss frequency or severity trends, any sudden and unforeseen disruption in its distribution channels or any material changes in financial position of the intermediate or ultimate parent organizations.
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:
• Risk Management and the Rating Process for Insurance Companies
• Evaluating Country Risk
• Rating Members of Insurance Groups
• Understanding BCAR for Property/Casualty Insurers
• Evaluating Non-Insurance Ultimate Parents
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