OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of “bbb-” of Waco Fire and Casualty Insurance Company (Waco). The outlook for both ratings has been affirmed at stable. Concurrently, A.M. Best has withdrawn these ratings upon management’s request to no longer participate in A. M. Best’s interactive rating process. Waco is currently a Tennessee domiciled captive insurer, which was formerly an admitted insurer based in Atlanta, GA.
The ratings reflect Waco’s strong risk-adjusted capitalization and its positive after-tax income posted annually since 2004. The positive rating factors are partially offset by the company’s high expense ratio, its volatile pre-tax operating return measures and narrow market scope. The outlooks reflect A.M. Best’s expectation that, despite the variability in operating results seen over the past five years, the company’s risk-adjusted capitalization will continue to support the current ratings.
Waco’s favorable after-tax income is driven (in part) by realized capital gains earned largely from its common stock portfolio coupled with investment income generated from fixed-income investments. Although the company has high investment leverage (equity holdings are approximately 60% of surplus), its strong risk-adjusted capitalization and low underwriting leverage partially offset this risk. Management has effectively priced its policies as demonstrated by Waco’s low loss ratio, which is well below composite norms.
All of Waco’s premiums are written for affiliated companies, which limits the company’s market scope. This also limits the company’s business prospects and profile given that it is dependent upon its parent’s operations to maintain its business profile. Waco’s premium volume has fallen over the past 10 years, as the parent has sold off a number of their operating entities. Premium volume further declined in 2013 following the non-renewal of its personal auto program participation. Writings are expected to continue to decline in 2015.
A.M. Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated in the United States and throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
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.
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