AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of a- of American Surety Company (ASC) (Indianapolis, IN).
The ratings reflect ASCs balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
The negative outlooks reflect AM Bests concern over the companys declining operating performance and return measures primarily as a result of its rising five-year average combined ratio that compares unfavorably with the Fidelity & Surety Composite measure. The companys rising combined ratio resulted from a material decline in written and earned premium, and corresponding rise in its underwriting expense ratio. The decline in premium volume was caused primarily by the termination of its largest agent in California.
ASC has reported favorable pre-tax operating and net income in each of the past years, but the overall trend in these metrics has declined. As a result, pre-tax and total returns on revenue and equity trail the Fidelity & Surety Composite, as well as similarly sized peers. In addition, the companys combined and operating ratios have experienced the same trend mainly due to underwriting expenses, and in 2018 these ratios were above break-even.
Policyholder surplus has declined over the past five years from dividends paid to its parent holding company, Eighth Amendment Holdings, Inc. Lastly, AM Best has concerns with challenging market conditions in the bail industry particularly in those states in which the company writes business that have legislative and ballot initiatives to change the cash bail system, specifically California, Indiana, New York, Ohio and Texas.
This press release relates to Credit Ratings that have been published on AM Bests 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 Bests Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Bests Credit Ratings. For information on the proper media use of Bests Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Bests Credit Ratings and AM Best Rating Action Press Releases.
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