OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (ICR) of “a-” of IAT Reinsurance Company Ltd. (IAT Re) (Hamilton, Bermuda) and its operating subsidiary Service Insurance Company (Service) (Bradenton, FL). The outlook of these Credit Ratings (rating) is stable.
Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” of Harco National Insurance Company (Harco) (Rolling Meadows, Illinois), Commercial Alliance Insurance Company (Commercial) (Houston, TX), TRANSGUARD INSURANCE COMPANY OF AMERICA INC. (Transguard) (Naperville, IL), Occidental Fire & Casualty Company of North Carolina (Occidental) (Raleigh, NC), Wilshire Insurance Company (Wilshire) (Raleigh, NC), Acceptance Indemnity Insurance Company (AIC) (Omaha, NE) and Acceptance Casualty Insurance Company (ACIC) (Omaha, NE). The outlook of these ratings is stable. The ratings are the result of these companies becoming members in a newly formed pool, Harco National Group (Harco Group), effective Jan. 1, 2016.
The ratings of Harco Group reflect the group’s solid risk-adjusted capitalization, strategic initiatives focused on improving underwriting measures, generally positive operating earnings, and its niche market knowledge and expertise. The members of the group write transportation related insurance products, specialty insurance products and program business through general agents and retail independent agents, as well as assumed reinsurance business produced through the brokered market. The ratings also reflect the support of its parent company, IAT Re, through reinsurance agreements, access to capital and management resources. The ratings also recognize more recent aggressive initiatives to improve operating profitability through the hiring of new management, internal management changes, improved pricing execution, tightening risk selection, exiting lines such as crop, public auto, some segments of unprofitable trucking and homeowners programs, as well as the expanded use of analytics and business intelligence.
Partially offsetting these strengths are the group’s elevated common stock leverage as a percentage of surplus, unfavorable underwriting results in 2011 and 2012, and the recent trend of modest adverse development. In keeping with IAT Re’s strategy of capitalizing on equity market opportunities, the group maintains high common stock leverage. This exposes its policyholders’ surplus to fluctuating market values, which resulted in significant net realized and unrealized capital losses in 2015. In the years 2012-2014, substantial net realized and unrealized capital gains resulted in significant surplus increases, with the increase in 2013 being particularly strong. Concerns with fluctuating equity market values are somewhat mitigated by the investment expertise and financial support of IAT Re, as evidenced by its historical capital contributions to offset substantial investment losses in its insurance subsidiaries. Although loss and loss adjustment expense reserves have historically been redundant, there is modest adverse development being seen, particularly for accident years 2012, 2013 and 2014. The group attributes this to a restructuring of the claims department, as well as adverse development on the run-off of the public auto line.
Factors that could lead to positive rating actions include the group achieving and sustaining solid underwriting and overall operating performance relative to the performance of the commercial casualty composite and a strong level of risk-adjusted capitalization. The ratings of the group may come under negative pressure if operating performance or risk-adjusted capitalization falls markedly short of A.M. Best expectations; there is a material deviation from the company’s submitted financial projections; there is an increase in loss reserve variability or the reporting of adverse loss reserve development; or if its parent company, IAT Re, fails to provide necessary financial and operational support.
The rating affirmations of IAT Re acknowledge its supportive level of risk-adjusted capitalization, solid liquidity and generally positive operating returns. The company continues to generate net investment income and generally favorable capital gains, which partially offset underwriting losses during the latest five year period, as its profitability is driven by the business it assumes from its subsidiaries in its role as their primary reinsurer.
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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