OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of A (Excellent) and Long-Term Issuer Credit Ratings of “a” of California Insurance Company (CIC) (Foster City, CA), Continental Indemnity Company, Illinois Insurance Company, Texas Insurance Company (Dallas, TX) and Pennsylvania Insurance Company. All companies collectively are referred to as North American Casualty Group (NAC). The outlook assigned to the Credit Ratings (ratings) is negative. All companies are domiciled in Santa Fe, NM, unless otherwise specified.
The ratings reflect NAC’s balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
A California judge on Nov. 4, 2019, appointed the California Department of Insurance as conservator of CIC after the state regulator legally challenged the company’s merger and relocation to New Mexico. AM Best remains in close dialogue with company management, as they work to resolve these outstanding regulatory issues. Currently, there is no clear date for a resolution of this matter; however, the company does continue to operate unencumbered by this action.
AM Best will continue to monitor NAC’s rating fundamentals and the potential impact stemming from the ongoing controversy between the company and the California Department of Insurance.
NAC’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is assessed at the strongest level, and AM Best expects it to remain at a similar level in prospective years. Balance sheet strength also benefits from the company’s strong liquidity profile, conservative investment strategy, and disciplined reserving.
NAC has a track record of strong operating earnings, underpinned by its robust underwriting performance and demonstrated by a five-year average return on equity ratio of 13.1% and a combined ratio averaging 75% (2015-2019). However, operating performance has deteriorated over the past couple of years as the workers’ compensation industry remains under pressure, and the company’s EquityComp product is now a smaller contributor to underwriting results. The expectation is for the company to maintain returns at historical levels to warrant the strong assessment for operating performance.
NAC’s business profile remains concentrated in the workers’ compensation line of business, which accounted for 80.7% of NAC’s gross written premiums (GWP) in 2019. Although management has achieved measured growth in other states, California remains the company’s primary market (i.e., 37% of 2019 GWP).
NAC’s risk management capabilities are viewed to be aligned with its risk profile; however, AM Best will continue to monitor the company's capabilities in maintaining regulatory compliance. NAC’s ERM assessment could be revised downward if current regulatory issues are not resolved with a favorable outcome.
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