OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Ratings of “bbb” (Good) of First American Property & Casualty Insurance Company and First American Specialty Insurance Company, collectively referred to as First American PC Companies (FAPCC). The outlook of these Credit Ratings (ratings) is negative. These companies are domiciled in Santa Ana, CA. Concurrently, AM Best has withdrawn these ratings as the company has requested to no longer participate in AM Best’s interactive rating process.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 FAPCC’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.
FAPCC primarily provides homeowners and renters insurance throughout the United States, with a geographic concentration in the Western region. The group’s operating results have been on a downward trend due to increased claim frequency and severity, which adds strain to its balance sheet strength. The group reported underwriting losses in 2017 and 2018, driven largely by the unprecedented California wildfire activity, which also caused pressure on its balance sheet strength. The fires losses diminished during 2019, but the group’s operating results remained unfavorable through year-end 2020. The group’s operating performance continues to be marginal; its surplus decreased an additional 5% since year-end 2019, which has added pressure to its balance sheet strength. Additionally, the parent company has entered into book transfer agreements with two third party insurers to transfer its property/casualty policies and expects the transfers to be completed by the end of the third quarter of 2022.
The negative outlooks reflect the potential for future loss emergence, loss reserve development and further deterioration in risk-adjusted capitalization. There is also concern relating to the book transfer agreements, their effects on senior leadership, employee turnover and risk management.
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