AM Best Affirms Credit Ratings of First Net Insurance Company

HONG KONG--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” (Good) of First Net Insurance Company (First Net) (Guam). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect First Net’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.

First Net’s risk-adjusted capitalisation is assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and supported by its relatively low net underwriting leverage, and conservative and liquid investment portfolio, both of which partially offset its small absolute capital base. Its reinsurance dependency is relatively high for catastrophe protection, and it has risen in recent years due to an increase in fronting-type business. However, credit risk is limited by its stable and high-quality reinsurer panel.

First Net’s adequate operating performance is underpinned by positive underwriting results and stable investment returns from its fixed income portfolio. Its combined ratios mostly outperformed its composite’s average over the past years, supported by disciplined underwriting, but the company’s small net premium base has led to moderate volatility arising from claims experience and expenses. The company has faced an additional expense burden since April 2019 when its tax-exempt qualifying certificate expired; however, this was offset partially by an increase in commission income from fronting business in recent years. Its underwriting performance was favourable in 2020/2021 mainly due to reduced claims in key business lines as economic activities decreased during the COVID-19 pandemic.

First Net is a domestic property/casualty insurer in Guam, and its main lines of business include fire, auto and workers’ compensation. The geographic concentration in a small and competitive market, which leaves its business highly dependent on local economic conditions and market competition, is a major factor that has constrained the business profile assessment. Nonetheless, the company has a stable business stream sourced through Moylan's Insurance Underwriters, Inc., its affiliated company, and a major multi-line insurance agency with a strong distribution network in Guam and nearby jurisdictions.

Negative rating actions could occur if First Net’s risk-adjusted capitalisation or absolute capital and surplus declines substantially. Negative rating actions also could occur if there is sustained and significant deterioration in its operating performance, for example, due to large losses or an increased expense ratio.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

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 specialising 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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