OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has assigned a Financial Strength Rating of B++ (Good) and a Long-Term Issuer Credit Rating of “bbb” (Good) to Pedcor Assurance Company (PAC) (Colchester, VT). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect PAC’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
PAC’s balance sheet strength reflects its risk-adjusted capitalization that is at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), along with its conservative underwriting and loss reserve leverage measures. Additionally, the company’s balance sheet strength benefits from its conservative investment portfolio and strong liquidity measures, which are enhanced by positive operating cash flow year after year. These positive factors are tempered by the large percentage of the company’s assets in the intercompany loan backs receivables. However, to somewhat mitigate this concern, the company’s parent, Pedcor Financial Bancorp guarantees repayment of these receivables.
PAC’s adequate operating performance assessment reflects the company’s historically favorable operating results, as all its insured properties are managed and/or owned by affiliates of PAC whose interests are aligned closely. However, there are some concerns regarding PAC’s recent entry into credit default insurance, which is a product that insurers against losses on portions of certain commercial loans issued by its affiliated banks. While the notional values on these loans are large relative to PAC’s surplus, defaults are considered remote and the loans are highly collateralized. Based on PAC’s projections over the next five years, the company’s adequate assessment seems appropriate.
As a single-parent captive, the company mission is to provide (re)insurance coverage on properties managed and/or owned by Pedcor Financial Bancorp along with supporting its banking affiliates with its new credit default insurance product. PAC also provides flexibility to its affiliates through a more cost-effective and stable alternative to commercial (re)insurance, particularly in hard market cycles. The company’s geographical reach spans across 19 states, which provides for some favorable geographical diversification. However, the company offers limited lines of coverage, which contributes to PAC’s limited business profile.
The company benefits from an appropriate ERM program that is well-integrated with that of a vertically integrated real estate development, banking and property management enterprise, which should lend itself to better risk identification and risk mitigation.
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