OLDWICK, N.J. -- (Business Wire)
A.M. Best Co. has revised the outlook to stable from positive and
affirmed the financial strength rating (FSR) of B (Fair) and issuer
credit ratings (ICR) of “bb+” of the pooled subsidiary members (First
Acceptance) of First Acceptance Corporation (Delaware) [NYSE:
FAC]. Concurrently, A.M. Best has revised the outlook to stable from
positive and affirmed the ICR of “b” of First Acceptance Corporation.
(See below for a detailed listing of the companies.)
The ratings of First Acceptance are based upon unfavorable operating
performance in recent years; concentration of risk in private passenger
non-standard auto lines; and challenging economic conditions compounded
by a below average interest rate environment. These negative factors are
offset in part by strong risk-adjusted capitalization and sound balance
sheet liquidity along with action being taken to improve earnings.
Losses in recent years have been negatively impacted by increased claims
severity, storm losses and higher expenses, as well as declining revenue
from premium writings, investment income and other income items. Premium
volume and additional fees charged to policyholders were down due to
scaling back production and the weakened economy. Investment income was
lower from reductions in invested assets and low interest rates.
Capitalization remains more than supportive of the ratings but has
weakened in recent years. First Acceptance Corporation contributed
nearly $13.1 million of additional capital to the insurance operations
in September 2012. This was to partially offset a reduction in surplus
primarily due to operating losses in 2011 and 2012 as well as a dividend
paid in 2011 to buy back shares. In addition, management has taken a
number of actions to improve earnings, primarily by raising rates,
closing under-performing retail stores and improving claims handling and
underwriting. However, capitalization may continue to weaken as
management executes an aggressive growth plan over the next couple of
years. The ratings may be further stabilized by a return to a profitable
operating trend that leads to capital appreciation; however, the ratings
may be downgraded by further weakening in risk-adjusted capitalization.
The rating of First Acceptance Corporation is based on the consolidated
financial strength of the insurance subsidiaries; its acceptable level
of financial leverage from debt; its ability to fund the debt without
having to take extraordinary dividends out of the insurance companies;
and the subordination of the holding company’s creditors to the
insurance companies’ policyholders.
The FSR of B (Fair) and ICR of “bb+” have been affirmed for the
following pooled subsidiaries of First Acceptance Corporation:
- First Acceptance Insurance Company, Inc.
- First Acceptance Insurance Company of Georgia, Inc.
- First Acceptance Insurance Company of Tennessee, Inc.
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a
comprehensive explanation of A.M. Best’s rating process and contains the
different rating criteria employed in the rating process. Key criteria
utilized include: “Risk Management and the Rating Process for Insurance
Companies”; “Equity Credit for Hybrid Securities”; “Understanding BCAR
for Property/Casualty Insurers”; and “Rating Members of Insurance
Groups.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more
information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS
A.M. Best Co.
Charles M. Huber, 908-439-2200, ext.
Managing Senior Financial Analyst
Burtone, 908-439-2200, ext. 5125
President – P/C Ratings
Morrow, 908-439-2200, ext. 5378
Senior Manager, Public
Peavy, 908-439-2200, ext. 5644
Assistant Vice President,
Source: A.M. Best Co.
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