OLDWICK, N.J. -- (Business Wire)
A.M. Best Co. has affirmed the financial strength rating (FSR) of
B (Fair) and issuer credit ratings (ICR) of “bb+” of First Acceptance
Insurance Group (First Acceptance) (Nashville, TN) and its pooled
members. Concurrently, A.M. Best has affirmed the ICR of “b” of the
group’s ultimate parent holding company, First Acceptance Corporation
(Delaware) [NYSE: FAC]. The outlook for all ratings is positive. (Please
see below for a detailed listing of the companies.)
The rating affirmations primarily are based on First Acceptance’s
inconsistent earnings over the last five years, unprofitable operating
performance in 2011, concentration of risk in highly competitive
non-standard automobile lines and an aggressive growth strategy to
increase production during soft market pricing and a low interest rate
These negative rating factors are partially offset by First Acceptance’s
favorable risk-adjusted capitalization, sound balance sheet liquidity,
generally positive earnings and actions taken by management to improve
profitability. The group operates under an intercompany pooling
arrangement and proportionately shares in the overall underwriting
performance of First Acceptance.
Earnings over the last five years have been negatively impacted by
increased claims severity, higher expenses and a reduction in premium
revenue due to the weak economy, competitive pricing and scaling back
unprofitable production after a period of rapid growth. Losses in the
current year primarily are attributed to higher bodily injury claims,
spring and summer storm losses and higher expenses from initiatives put
in place to improve pricing and fraud detection, as well as severance
pay for several top executives.
First Acceptance’s balance sheet is favorable as a result of early
capital contributions to support growth over the last five-year period
and has been maintained by generally profitable operations over the same
period. However, capitalization is expected to weaken; although, should
remain supportive of the ratings as the group’s new management initiates
an aggressive growth plan over the next few years. A.M. Best is
concerned that earnings projections will be challenged if pricing, risk
selection and reserving discipline are not maintained, along with
growth, during the current competitive, soft non-standard auto market
and low interest rate environment.
First Acceptance’s outlook and ratings may come under negative pressure
if an unfavorable earnings trend develops and its capital erodes.
However, the ratings could benefit from a favorable earnings trend,
while maintaining favorable risk-adjusted capitalization.
The FSR of B (Fair) and ICR of “bb+” have been affirmed for First
Acceptance Insurance Group and its following pooled members:
- First Acceptance Insurance Company, Inc.
- First Acceptance Insurance Company of Georgia, Inc.
- First Acceptance Insurance Company of Tennessee, Inc.
The principal methodology used in determining these ratings is Best’s
Credit Rating Methodology -- Global Life and Non-Life Insurance Edition,
which provides a comprehensive explanation of A.M. Best’s rating process
and highlights the different rating criteria employed. Additional key
criteria utilized include: “Risk Management and the Rating Process for
Insurance Companies”; “Understanding BCAR for Property/Casualty
Insurers”; “Rating Members of Insurance Groups”; “A.M. Best’s Ratings &
the Treatment of Debt”; Equity Credit for Hybrid Securities”; and
“Natural Catastrophe Stress Test Methodology.” Methodologies 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 © 2011 by A.M. Best Company, Inc.ALL RIGHTS
A.M. Best Co.
Charles M. Huber, Senior Financial Analyst,
908-439-2200, ext. 5122
Burtone, Assistant Vice President, 908-439-2200, ext. 5125
Lovell, Public Relations Associate, 908-439-2200, ext. 5445
Peavy, Assistant Vice President, Public Relations, 908-439-2200, ext.
Source: A.M. Best Co.
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