OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” from “a-” of Guardian Insurance Company, Inc. (Guardian) (St. Thomas, Virgin Islands). The outlook of the FSR has been revised to stable from negative, while the outlook of the Long-Term ICR remains negative. Concurrently, AM Best has downgraded the FSR to B (Fair) from B+ (Good) and the Long-Term ICR to “bb” from “bbb-” of Echelon Property & Casualty Insurance Company (Echelon) (Chicago, IL). The outlook of these Credit Ratings (ratings) is stable.
The ratings of Guardian reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The rating actions reflect a revision of AM Best’s assessment of Guardian’s operating performance to marginal. The rating downgrades are in response to volatile operating performance over the previous years, resulting in a deterioration of policyholder surplus. Furthermore, the company has above-average leverage measures and high dependence on reinsurance, as it is geographically concentrated in a catastrophe-prone area. Results were impacted by adverse loss reserve development from prior accident years. However, its most recent financial statements show stabilization of its risk-adjusted capital position due to improved performance. Nevertheless, Guardian’s elevated expense structure continues to place pressure on Guardian’s underwriting performance.
As a significant player in the automobile segment, Guardian has been operating in the U.S. Virgin Islands 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 benefits from the financial flexibility and support of its parent, Lockhart Companies, Inc., a major real estate developer domiciled in the U.S. Virgin Islands.
The ratings of Echelon reflect its balance sheet strength, which AM Best categorizes as weak, as well as its marginal operating performance, limited business profile and appropriate ERM. Echelon receives lift due to its strategic importance to Guardian, as it provides geographic diversification. In addition, Echelon has received support in the form of capital contributions from Guardian.
The rating actions reflect a revision of AM Best’s assessment of Echelon’s balance sheet to weak. The rating downgrades are in response to a material decline of risk-adjusted capitalization that has resulted from a significant increase in unseasoned non-standard personal automobile business. The premium growth resulted in increased leverage measures, and reflects increased vulnerability of the capital base to reserve inadequacy and dependence on reinsurers. While the most recent operating performance shows some improvement for the company’s core line of business, commercial auto, there is still uncertainty regarding the personal automobile business’ profitability over the long term.
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