OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating to C++ (Marginal) from B (Fair) and the Long-Term Issuer Credit Rating to “b” from “bb” of American Transportation Group Insurance Risk Retention Group, Inc. (ATGI) (Raleigh, NC). The outlook of these Credit Ratings (ratings) have been revised to negative from stable. Concurrently, AM Best has withdrawn these ratings as the company has requested to no longer participate in AM Best’s interactive rating process.
The ratings reflect ATGI’s balance sheet strength, which AM Best categorizes as very weak, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The rating downgrades and revision of outlooks to negative reflect a material erosion in ATGI’s balance sheet strength as of Dec. 31, 2019, relative to its initial business plan. Annualized growth in net written premiums and loss and loss adjustment expense reserves has outpaced growth in policyholders’ surplus significantly over the past year, impacting not only underwriting and reserve leverage measures—which compare unfavorably with those of the commercial automobile industry composite—but also the balance of net required capital to available capital depicted by the calculation of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). These simultaneous conditions have resulted in a significant shock to ATGI’s balance sheet strength and created uncertainty around AM Best’s projections of the company’s balance sheet strength in the near term.
Operating performance over the past year fell below expectations according to ATGI’s initial business plan but remained broadly consistent with what AM Best considered to be an adequate operating performance assessment. The limited business profile assessment is driven largely by ATGI’s product concentration in the commercial automobile insurance industry, which exposes results to potential competitive, judicial, economic, or regulatory challenges. The appropriate ERM assessment is driven by an evolving risk management framework, and risk management capabilities that remain appropriately commensurate with the complexity of the business.
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