OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit rating (ICR) of “aa-” of Central States Indemnity Co. of Omaha (CSI) (Omaha, NE). In addition, A.M. Best has affirmed the FSR of A (Excellent) and the ICR of “a” of CSI Life Insurance Company (CSI Life) (Omaha, NE). The outlook for all ratings is stable.
The ratings reflect CSI’s excellent risk-adjusted capitalization, consistently profitable operating performance, favorable balance sheet liquidity and very conservative underwriting leverage, as well as the benefits made available through its ultimate parent, Berkshire Hathaway, Inc. [NYSE: BRK A and BRK B]. CSI is a specialty insurance company that provides payment protection programs to some of the largest financial organizations in the country, agricultural equipment insurance and Medicare supplement insurance.
These positive rating factors are offset by the significant reduction in CSI’s credit insurance book of business, which has resulted from the banking industry’s switch to non-insurance debt protection products in lieu of traditional credit insurance. CSI has migrated to other products and services and today writes more non-credit insurance premiums compared to its long-standing credit insurance business. Additional offsetting factors include CSI’s elevated investment leverage and near-term execution risk and strain to earnings brought on by the up-front costs and investment associated with new lines of business.
The ratings of CSI Life reflect its adequate risk-adjusted capitalization, the explicit support provided by its parent, CSI, as well as the benefits made available through its ultimate parent, Berkshire Hathaway, Inc. CSI Life’s in-force book of business relates to assumed life business written in conjunction with certain credit card disability, involuntary unemployment and family leave insurance issued by CSI. Offsetting rating factors include CSI Life’s limited business profile and a lack of product diversification. While CSI is currently writing non-credit insurance products on a direct basis (Medicare supplement), CSI Life has not yet commenced direct sales of this new business.
A.M. Best believes CSI is well positioned at its current rating level. However, negative rating actions could occur if there is a decline in underwriting and operating performance, a considerable deterioration in risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio, or if A.M. Best determines that the company's strategic importance to its parent no longer warrants rating enhancement.
Upward rating actions for CSI Life could be driven by further integration into CSI's strategy and successful implementation of its business plan. Key rating drivers that may lead to negative rating actions include a material deterioration in CSI Life's operating performance, lack of support from the parent company or substantial deterioration in risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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