OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” of Guardian Insurance Company, Inc. (Guardian) (St. Thomas, Virgin Islands). Concurrently, AM Best has removed from under review with negative implications and affirmed the FSR of B- (Fair) and the Long-Term ICR of “bb-” of Echelon Property & Casualty Insurance Company (Echelon) (Chicago, IL). The outlook assigned to these Credit Ratings (ratings) is negative.
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 company’s risk-adjusted capitalization has been negatively impacted by significant premium growth and operating losses over the previous five years. The above average growth has resulted in increased underwriting and ceded leverage measures relative to the composite. Furthermore, Guardian’s reserve development has been volatile over the five most recent accident and calendar years and was the primary reason for the deterioration in policyholder surplus. However, reserve development improved over the past year. In addition, the parent, Lockhart Companies, Inc. has demonstrated support in the past and contributed $1.78 million in the first quarter of 2020.
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. Guardian is highly dependent on reinsurance, as it is geographically concentrated 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.
Echelon experienced a material decline in risk-adjusted capitalization that resulted from unfavorable reserve development. This deterioration in reserves is the result of a significant increase in new non-standard personal automobile business, as well as frequent and severe losses related to its commercial auto business. The new business and decline in capitalization has increased leverage measures and reflects the company’s increased vulnerability to continued reserve inadequacy.
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