OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlook to negative from stable and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” of Guardian Insurance Company, Inc. (Guardian) (St. Thomas, Virgin Islands). Concurrently, A.M. Best has affirmed the FSR of B+ (Good) and the Long-Term ICR of “bbb-” of Echelon Property & Casualty Insurance Company (Echelon) (Chicago, IL). The outlook of these Credit Ratings (ratings) is stable.
The ratings and outlooks of Guardian are based on the consolidated operating results of Guardian and its 100% wholly owned subsidiary, Echelon. The ratings reflect its adequate risk-adjusted capitalization, dominant automobile market share and strong name recognition in the United States Virgin Islands (USVI) marketplace. In addition, Guardian benefits from the financial flexibility and support of its parent, Lockhart Companies Inc. (LCI), a major real estate developer domiciled in the USVI. The negative outlook reflects Guardian’s above-average net written premium leverage, downward trend in underwriting performance and declining overall risk-adjusted capitalization. In addition, the company maintains a dependence on reinsurance and a geographic concentration of risk as a majority of its business is in the USVI.
As a significant player in the automobile segment, Guardian has been operating in the USVI market for 30 years, and its business growth is attributed to its extensive distribution network. Guardian has established strong name recognition and is the leading automobile writer with a dominant share of the local market. Guardian has produced solid operating results over the previous five-year period that compare favorably with its industry peer composite. In addition, Guardian benefits from the financial support it receives from LCI. Support has been demonstrated by past capital contributions to enhance Guardian’s operations and improve its capitalization, and the parent’s stated willingness to make further cash infusions if needed.
While Guardian’s loss ratio compares favorably with its peers, the organization’s elevated expense ratio reflects the higher cost of doing business in the USVI. However, the expense ratio has trended slightly downward in recent years due to growth in net premiums written and expense reduction initiatives. In addition, since the organization operates mainly in the USVI, which is located in a catastrophe-prone zone with significant exposure to weather-related losses, a higher dependence on reinsurance is necessary to mitigate these risks. Lastly, Guardian’s surplus has declined in recent years, driven by stockholder dividend payments to its parent.
The ratings affirmations and stable outlooks of Echelon reflect its supportive, risk-adjusted capitalization, the financial and operating support of its direct parent, Guardian, and the benefits derived from common management and enhanced financial flexibility.
These positive rating factors are partially offset by Echelon’s unfavorable operating performance as measured by its five-year pre-tax returns on revenue and equity, which are negative and significantly lower than the commercial automobile industry composite The company also has reported significant growth in policies and net premiums written in recent years, which has resulted in net and gross underwriting leverage trending upwards.
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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