OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit rating (ICR) of “a” of The Guarantee Company of North America (GCNA) (Toronto, Ontario, Canada). Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the ICR of “a” of GCNA’s subsidiary, The Guarantee Company of North America USA (GCNA USA) (Detroit, MI). The outlook for all ratings has been revised to negative from stable.
The affirmations of GCNA’s ratings reflect the company’s strong capitalization, prominent market profile, strong investment returns and improving overall reserve development patterns. As the oldest surety company in North America, GCNA has a prominent market profile, particularly in North American surety and other specialty lines. The ratings also consider its active involvement in the U.S. surety market, through its subsidiary GCNA USA.
The revision in GCNA’s rating outlooks reflects the company’s underwriting and operating performance over the most recent five-year period. More recently, GCNA was adversely impacted by severe and frequent storm losses in 2013 and in the early part of 2014. While results have since rebounded, GCNA’s operating performance averages continue to lag industry composite results.
The management team has implemented numerous initiatives over the past few years in an effort to restore underwriting profitability. These initiatives include the tightening of underwriting guidelines, more aggressive rate taking, the implementation of a new software system, a stronger focus on brokers, and the introduction of a new contingent commission format. While improvement has been evident in the company’s core loss ratio results, overall performance continues to lag similarly rated companies. These initiatives have also exerted temporary pressure on the expense ratios, as have management’s rebalancing of its personal lines and its focus on specialty lines, which have inherently higher commission rates and underwriting costs.
GCNA USA’s ratings reflect its excellent risk-adjusted capitalization, improved operating performance, steady investment income, good leverage position and the implicit and explicit support it receives from GCNA. While operating income has been positive for the past five years, the company’s underwriting performance remained volatile through 2012. In recent years, GCNA USA has demonstrated an increasing success in achieving its growth and profitability objectives. In fact, the strong underwriting profits generated by GCNA USA in 2013 and 2014 helped better the parent’s performance during the recent weather events.
GCNA USA has benefited greatly from its parent’s commitment of resources to reorganizing and streamlining its operation. The parent and subsidiary’s objectives and initiatives are in lockstep. These initiatives include continued efficiencies and synergies through integrated business systems, rebalancing of the branch network system, strengthening underwriting guidelines and mirroring claims management practices of the parent company. The revision in GCNA USA’s rating outlooks reflects the underwriting and operating performance of its parent, GCNA.
If GCNA is able to demonstrate continued sustained and consistent operating trends in the near to mid-term, a change in outlook to stable may be afforded to both GCNA and GCNA USA at that time. Conversely, A.M. Best may lower the ratings of both companies in the near to mid-term if the parent, GCNA, incurs material losses in its capitalization; has a relapse of reductions in the profitability of its core book of business; becomes unable to contain the exposure to adverse development within its liability reserves with the current set of preventative measures; or has substantial catastrophe losses relative to their peers, as well as the industry’s averages.
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
- Insurance Holding Company and Debt Ratings
- Rating Members of Insurance Groups
- Rating Surety Companies
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for Canadian Property/Casualty Insurers
- 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.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.