OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Restoration Risk Retention Group, Incorporated (RRRG) (Burlington, VT).
The revision of the outlooks reflects significant improvement in RRRG’s risk-adjusted capitalization since 2014, coupled with a material decrease in the accident-year loss and loss adjustment expense ratios over the past two years.
Risk-based capitalization has improved materially over the past two years as RRRG has increased its surplus significantly through strong underwriting profits from favorable reserve development and $3 million in additional letters of credit from its sponsor, Servpro Industries, Inc. The company also has dramatically reduced its equity leverage since mid-2016 as shifts its investment portfolio away from equity exposures has reduced volatility in its investment results. Underwriting and profitability ratios for 2015 and 2016 improved significantly due to favorable reserve development. Combined and operating ratios had fallen behind industry averages in 2013 and 2014, following a history of readily outperforming the composite and the industry.
The ratings of RRRG reflect supportive risk-adjusted capitalization, focused business strategy and historically strong operating performance. Partially offsetting the positive rating factors are a fairly limited business profile, oriented exclusively toward one class of insured group, and limited net investment income, although it has generated steady, albeit modest, investment income and very good liquidity.
Positive rating actions could occur if operating results reflect management’s successful execution of its growth strategies or if risk-based capitalization significantly improves through surplus growth from operating profits, with no material deterioration in loss experience. Negative rating actions could occur if risk-adjusted capitalization materially weakens or if underwriting losses re-emerge, which would reflect material volatility in operating performance.
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