OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” from “bbb+” and affirmed the Financial Strength Rating (FSR) of B++ (Good) of Guardian Insurance Company, Inc. (Guardian) (St. Thomas, U.S. Virgin Islands). Concurrently, AM Best has downgraded the FSR to B- (Fair) from B (Fair) and the Long-Term ICR to “bb-” from “bb” of Echelon Property & Casualty Insurance Company (Echelon) (Chicago, IL). AM Best has placed all of these Credit Ratings (ratings) under review with negative implications.
The ratings of Guardian reflect its balance sheet strength, which AM Best categorizes as adequate, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The rating downgrade of Guardian’s Long-Term ICR reflects a revision in AM Best’s view of the company’s balance sheet strength to adequate from very strong. The company’s risk-adjusted capitalization has been impacted negatively by significant premium growth and operating losses. The operating losses are due to reserve deficiencies caused by the significant amount of unseasoned business, which has caused policyholder surplus to deteriorate. Although management has implemented rate increases and revised the company’s underwriting guidelines in an attempt to improve results, these actions have not proven sufficient to return the company to profitability. In addition, the company has above average leverage measures and a high dependence on reinsurance, as it is concentrated geographically in a catastrophe-prone area.
The ratings of Echelon, Guardian’s wholly owned subsidiary, reflect its balance sheet strength, which AM Best categorizes as weak, as well as its marginal operating performance, limited business profile and appropriate ERM.
The rating downgrades of Echelon reflects a continued material decline of its risk-adjusted capitalization that has resulted from unfavorable reserve development. The deterioration in reserves is the result of a significant increase in unseasoned non-standard personal automobile business. The new business and decline in capitalization has increased leverage and reflects the company’s increased vulnerability to continued reserve inadequacy.
Guardian and Echelon’s under review with negative implications status considers Lockhart Companies, Inc.’s (the ultimate parent) expected capital contribution to be executed in March 2020. The negative implications reflect the potential for the ratings to be downgraded in the event the capital contribution is insufficient to maintain the current balance sheet strength assessments. These ratings will remain under review until AM Best reviews these companies’ final year-end 2019 financial statements and the capital contribution is executed.
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