OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb+” from “bb” and affirmed the Financial Strength Rating of B (Fair) of One Alliance Insurance Corporation (One Alliance) (San Juan, Puerto Rico). The outlook of these Credit Ratings (ratings) has been revised to stable from negative.
The ratings reflect One Alliance’s balance sheet strength, which AM Best categorizes as adequate, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).
The upgrade of the Long-Term ICR is based on significant growth in One Alliance’s surplus in 2019, primarily driven by a capital contribution provided by the company’s new owners. The capital infusion and anticipated on-going parental support mitigate AM Best’s previous concerns regarding the company’s capital position. Additionally, AM Best also has revised the outlooks to stable from negative, largely driven by the company’s improved underwriting leverage measures (gross, ceded and net) driven by the aforementioned capital infusion and demonstrated improved financial flexibility.
One Alliance’s balance sheet strength is reflective of its strongest risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), conservative investment portfolio and new ownership commitment to support the company’s growth. These positive factors are offset partially by the company’s considerable catastrophe exposure and limited scale of operations.
AM Best categorizes One Alliance’s operating performance as marginal. The company reported underwriting loss in each of its first four years of operations. However, in each year, the company’s results have improved due to increased premium volume, as it tries to reach economy of scale. In 2019, operating performance was impacted by adverse development on its Hurricane Maria claims, affecting the company’s combined ratio.
One Alliance’s business profile is limited due to its geographical concentration in Puerto Rico, which exposes results to weather-related events and overall macro-economic conditions on the island, as well as to regulatory and competitive market challenges. AM Best assesses the company’s ERM assessment as marginal, as its risk management capabilities do not align with its risk profile. Demonstrated weakness has been observed given the level of catastrophe losses relative to prior reinsurance purchasing decisions for the enterprise. While the losses associated with Hurricane Maria were unprecedented in nature, the size of the losses lead to a marginal assessment.
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