AM Best Downgrades Credit Ratings of Standard Casualty

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” (Good) from “a-” (Excellent) of Standard Casualty (New Braunfels, TX). The outlook of the FSR has been revised to stable from negative, while the outlook of the Long-Term ICR is negative.

These Credit Ratings (ratings) reflect Standard Casualty’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The ratings downgrade reflects weaker risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), when compared with previous rating reviews. The risk-adjusted capitalization declined to the strong level at year-end 2021, from the strongest level at year-end 2020. This deterioration was primarily a result of greater modeled exposure, which was influenced by changes within the applied models, growth within Texas, as well as adjustments to the level and structure of reinsurance coverage. Furthermore, loss reserve development has been inconsistent in recent years, but favorable in 2021. Underwriting leverage, while stable, remains elevated as compared with AM Best’s personal property composite averages.

The negative outlook on the Long-Term ICR reflects volatile operating performance over the past five years driven by underwriting losses that pertain to an increasing frequency of weather-related events.

Furthermore, concerns have developed regarding the effectiveness of Standard Casualty’s ERM initiatives in light of recent material increases to modeled losses, as discussed above, which negatively impacted risk-adjusted capitalization.

Standard Casualty Company is a 100% wholly owned subsidiary of Palm Harbor Homes, which in turn, is a wholly-owned subsidiary of Cavco Industries, Inc. (Cavco) [NASDAQ: CVCO], a leading producer of manufactured homes in the United States. Standard Casualty’s primary source of gross exposure growth at present is driven by an increase in the site-built, low value dwelling business in Texas. Standard Casualty retains 30% of this business as part of a quota-share reinsurance agreement. The site-built business is separate from the larger manufactured home portfolio, the latter benefiting from the Cavco relationship. The current business profile assessment reflects the advantages obtained through the affiliation and its direct impact on the book of business.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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