OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating (FSR) of B (Fair) and the issuer credit ratings (ICR) of “bb+” of the subsidiaries of First Acceptance Corporation (collectively referred to as First Acceptance ) (Delaware) [NYSE:FAC]. Concurrently, A.M. Best has affirmed the ICR of “b” of First Acceptance Corporation. The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings).
The ratings are a reflection of First Acceptance’s past below average operating performance, its concentration of risk in private passenger non-standard automobile lines, elevated underwriting leverage compared with the private passenger non-standard automobile composite and the holding company’s dependency on First Acceptance to raise capital. These negative rating factors are partially offset by adequate risk-adjusted capitalization, consistent fee income and continued strategic use of marketing and technological efforts resulting in a return to profitability in 2013 and continuing in 2014.
First Acceptance’s generally below average operating performance was mainly due to recurring underwriting losses between 2009 and 2012 and decreasing investment income. During the latest five-year period, underwriting losses, coupled with an overall surplus decline, resulted in unfavorable operating earnings and elevated net underwriting leverage measures. Frequent and severe spring and summer storms attributed to these underwriting losses due to First Acceptance’s geographic concentration throughout the southeastern United States. Also, the company’s focus in private passenger non-standard automobile lines subjects the company to competitive market conditions.
First Acceptance’s capitalization is adequate and more than supportive of its current ratings. Fee income, which covers expenses for policy issuance, reinstatement and billing, insufficient funds from checking accounts and insurance verification for various states and management agency operations, is a significant component of First Acceptance’s product pricing. In 2013 and through 2014, First Acceptance has added to surplus. First Acceptance’s improved operating results are also attributable to effective marketing, simplifying customer responsibilities and streamlining technology efforts.
Positive rating actions are contingent upon First Acceptance’s consistently favorable operating performance and improved overall risk-adjusted capitalization through organic surplus growth, while maintaining favorable underwriting leverage measures. Negative rating actions may occur if risk-adjusted capitalization declines or if the company were to experience deterioration in operating performance.
The FSR of B (Fair) and the ICRs of “bb+” have been affirmed for the following pooled subsidiaries of First Acceptance Corporation:
- First Acceptance Insurance Company, Inc.
- First Acceptance Insurance Company of Georgia, Inc.
- First Acceptance Insurance Company of Tennessee, Inc.
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.
Key insurance criteria reports utilized:
- Risk Management and the Rating Process for Insurance Companies
- Insurance Holding Company and Debt Ratings
- Understanding BCAR for Property/Casualty Insurers
- Catastrophe Analysis in A.M. Best Ratings
- Rating Members of Insurance Groups
- Equity Credit for Hybrid Securities
This press release relates to rating(s) 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 visit A.M. Best’s Ratings & Criteria Center.
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