OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of Housing Authority Property Insurance, A Mutual Company (HAPI), Housing Authority Risk Retention Group, Inc. (HARRG) and their jointly owned subsidiary, Housing Enterprise Insurance Company, Inc. (all members of and together known as the HAI Group). Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” of Housing Specialty Insurance Company, Inc. (HSIC). The outlook of these Credit Ratings (ratings) is stable. All companies are domiciled in Burlington, VT.
The ratings of the HAI Group reflect its excellent capitalization, very strong operating results, leading position and proven expertise in the niche public housing authority market. A.M. Best deviated from its “Rating Members of Insurance Groups” criteria in regard to certain ownership limitations that relate to the existence of a risk retention group within the HAI Group.
Partially offsetting these positive rating factors is the group’s concentration of risk in the public housing authority sector, which magnifies the impact of market cycles, public policy and legislative changes. Another offsetting factor is the erosion in the group’s underwriting profitability over the most recent five-year period due to an increase in frequency and severity of claims. Furthermore, due to the prevailing low interest rate environment, investment income has also declined over the most recent five-year period, resulting in a decrease in the company’s total return metrics. As a result of these factors, A.M. Best has placed a negative outlook on the group.
HAI Group provides property and liability coverages to public housing authorities and their affiliated operations, and to affordable housing throughout the United States. While retaining a large percentage of its member-insureds and regularly adding new members, HAI Group has historically built up its surplus through retained earnings while maintaining a very low underwriting leverage. Over the years, the group has increased rates when appropriate and withdrawn from problematic accounts and lines of business, such as workers’ compensation. In addition, HAI Group benefits significantly from effective enterprise risk management, its tax-efficient structure and strong client relationships supported by a number of customized programs and services. The group maintains conservative investment portfolios and utilizes reinsurance prudently.
A negative rating impact could occur if underwriting performance shows a continued decline or demonstrates volatility that negatively affects earnings and capitalization over time. In addition, a negative rating impact may occur if there is a material shift in risk profile that could potentially undermine the stability and profitability of the company.
The ratings of HSIC reflect its strong capital position and the support it receives from the HAI Group. HSIC is an excess and surplus lines insurer that will be providing a non-traditional insurance program to public and affordable housing providers throughout the United States, as well as a for-profit, property/casualty stock insurer that was incorporated in Vermont. The company is jointly owned by HARRG and HAPI as a subsidiary. Partially offsetting these positive rating factors is the start-up nature of the company, which is mitigated by the successful performance and support of the HAI Group.
A positive rating impact is likely if additional capital is infused, thus improving the company’s risk-based capital position. A negative rating impact could occur if underwriting performance declines and demonstrates volatility that negatively impacts earnings and capitalization over time. In addition, a negative rating impact could occur if there were a material shift in risk profile that could potentially undermine the stability and profitability of the company.
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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