OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating (FSR) of B (Fair) and Long-Term Issuer Credit Rating (Long-Term ICR) of “bb” of American Service Insurance Company, Inc., American Country Insurance Company (both domiciled in Elk Grove Village, IL) and Gateway Insurance Company (St. Louis, MO), collectively referred to as American Service Pool (ASI Pool). The outlook of these Credit Ratings (ratings) is stable. These companies are subsidiaries of Atlas Financial Holdings, Inc. (Atlas) (Cayman Islands) [NASDAQ:AFH], and operate under an intercompany reinsurance pooling agreement. Concurrently, A.M. Best has also affirmed the Long-Term ICR of “b-” of Atlas. The outlook of this rating is stable.
At the same time, A.M. Best has affirmed the FSR of B+ (Good) and the Long-Term ICR of “bbb-” of Global Liberty Insurance Company of New York (Global) (Melville, NY), another wholly owned subsidiary of Atlas. The outlook of these ratings is negative.
The affirmations of the ASI Pool member’s ratings reflect the group’s volatile, and at times weak risk-adjusted capital position, inherent risks associated with integrating recent acquisitions and the group’s below average investment yields and returns on its investment portfolio. These negative rating factors are partially offset by the steadily improving underwriting and operating performance over the past five years and management’s extensive experience and expertise in its niche market serving the public “for hire” auto market.
The Pool’s volatile, and at times, weak risk-adjusted capital position was the result of achieving significant premium growth over the past several years through an acquisition by its parent, Atlas Financial Holdings, Inc. Atlas purchased Gateway Insurance in 2013, elevating the execution risks associated with integrating this business into existing infrastructure. Atlas also purchased Global in 2015, which could potentially place additional demand on Atlas’ management. However, the capital position of the pool was significantly improved in 2015, as a result of the issuance of three surplus notes from the Pool to its parent, totaling $15.5 million. Also of concern is the pool’s investment portfolio, which is heavily weighted towards bonds, leaving investment income growth highly contingent upon currently low interest rate levels. This greatly increases the pool’s reliance on underwriting income to fuel surplus growth.
The improved operating results, beginning in 2012, demonstrate Atlas’ strategic focus on its historically profitable lines of business, while running off non-core lines and books of business produced by managing and general agents. Favorable underwriting performance drove the improved results with the cancellation of unprofitable business, base rate increases, fraud mitigation, the absence of significant reserve strengthening and greater geographic diversification. The expense ratio reduction was primarily due to the efficiencies gained through premium growth that occurred with the recapture of previously lost business.
Positive rating movement is possible if the company sustains continued improvement in operating performance or shows additional improvements in its risk-adjusted capitalization levels. The ratings could be negatively impacted by deterioration in underwriting and operating results, a developing trend of material adverse loss development, or if the pool’s risk-adjusted capitalization deteriorates to a level that no longer supports the current ratings.
The ratings for Global reflect its expertise within the New York City metropolitan area’s for-hire-livery vehicle market and improved capital position as a result of a $3.5 million capital infusion made by its new parent, Atlas. These positive rating factors are offset by Global’s volatile underwriting and operating results in recent years, driven mainly by unfavorable prior year loss reserve development related primarily to assigned risk and run-off business, which resulted in declines in surplus in 2012 and 2013. Additionally, Global has reported historically low risk-adjusted capitalization, driven by substantial growth in net premiums written as a result of the cancellation of quota share reinsurance in prior years. Although Atlas’ management is committed to initiating appropriate actions in order to improve performance and reduce volatility, the negative outlook reflects A.M. Best’s concern regarding the adequacy of Global’s loss reserves and recent volatility in underwriting and operating performance.
This press release relates to Credit Ratings 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 see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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