OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of The American Road Insurance Company (TARIC) (Dearborn, MI). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect TARIC’s excellent capitalization level, history of positive operating performance, conservative reserving practices and effective exposure management. Over the past five years, the company’s after-tax five-year return on surplus has averaged nearly 8%, primarily driven by largely profitable underwriting results and realized capital gains supplementing investment income. TARIC has consistently logged operating income in each of the past five years.
TARIC is a single parent, or pure, captive insurer wholly owned by Ford Motor Credit Company, LLC (Ford Credit), which in turn is an indirect wholly owned subsidiary of Ford Motor Company (Ford) [NYSE:F]. The company provides a variety of coverages to Ford and its subsidiaries in the United States and Canada, primarily automobile floor plan collateral protection, inland marine, extended service business and commercial auto liability.
Partially offsetting these positive rating factors is TARIC’s narrow business focus and dependency on Ford’s business. In addition, underwriting results in its automotive floor plan business is subject to volatility due to events that may impact vehicle inventories, such as severe weather, which was experienced in 2014 and 2016. Furthermore, capital and surplus levels have declined over the last five years, primarily attributed to extraordinary dividends to its parent. Notwithstanding, there is considerable flexibility in the dividend, as evidenced in 2012, 2013 and 2016 when no dividend was paid. An additional offsetting rating factor is TARIC’s dependence on reinsurance to protect surplus. However, the credit risk associated with this is mainly offset by collateral held in trust.
While the current ratings or outlooks are not expected to change in the near term, significant deterioration in operating performance may result in downward movement in the ratings and/or outlooks. In addition, significant erosion in risk-adjusted capitalization levels may result in negative rating action. Lastly, negative rating actions may also occur if the credit ratings of the Ford Motor Company were to be downgraded.
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.
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