|[February 01, 2013]
A.M. Best Revises Outlook to Negative for American Safety Insurance Holdings, Ltd. and Its Subsidiaries
OLDWICK, N.J. --(Business Wire)--
A.M. Best Co. has revised the outlook to negative from stable and
affirmed the financial strength rating of A (Excellent) and issuer
credit ratings (ICR) of "a" of the insurance operating subsidiaries of American
Safety Insurance Holdings, Ltd. (ASI) (Hamilton, Bermuda)
[NYSE:ASI], which include: American Safety Casualty Insurance Company,
American Safety Indemnity Company (both domiciled in Oklahoma
City, OK), American Safety Reinsurance, Limited (ASRE) (Hamilton,
Bermuda) and its affiliate, American Safety Risk Retention Group, Inc.
(Burlington, VT). Concurrently, A.M. Best has revised the outlook to
negative from stable and affirmed the ICR of "bbb" of ASI.
The ratings are based on the consolidated financial condition and
operating performance of ASRE and its three U.S. domestic subsidiaries
and affiliate (entities), with each one receiving significant quota
share reinsurance support from ASRE.
The revised outlook reflects the unfavorable underwriting results
reported in 2011 by the ASI subsidiaries and A.M. Best's expectation of
similar results for 2012, which have been impacted by weather related
losses and unfavorable development in prior year loss reserves,
primarily for business that has been placed in run off. The revised
outlook also considers the inherent risks involved in ASI's anticipated
build-out of new and existing lines of business (particularly its excess
and surplus lines and reinsurance divisions) through the expansion into
new geographic territories, growth and expansion of its surety business
associated with the recent acquisition of the Bluestone Agency in 2012
and the melding of new underwriting teams into ASI's culture.
Furthermore, this revised outlook takes into consideration the
organization's adverse prior year loss reserve development reported in
2011, ad additional reserve strengthening in 2012, ASI's recent
de-emphasis on certain poorly performing reinsurance and program
businesses, competitive headwinds, elements of execution risk associated
with ASI's diversification strategy and the challenges facing management
to improve underwriting results over the near term.
Despite the revised outlook, the ratings reflect the adequate
consolidated capitalization of the ASI subsidiaries, their solid,
overall operating results over the long term and the effective
management of their insurance operations. The ratings also recognize
ASI's core underwriting expertise in its niche markets, with customized
risk management programs and loss control services. While ASI's overall
risk-adjusted capitalization remains supportive of the current ratings
(driven by its manageable underwriting leverage and modest investment
leverage) further deterioration in operating profitability combined with
the possibility of additional share repurchases could have a limiting,
or even negative impact on the organization's capital strength.
ASI has taken advantage of its niche market expertise and has focused on
generating operating earnings in support of business expansion and
premium growth in recent years. However, the long-term profit or loss
potential of the newer or expanded classes or lines of business have yet
to be established. A.M. Best expects ASI to continue providing explicit
support as needed in order to manage growth, which is part of its
business plan as well as to ensure that the capitalization of ASRE and
its related subsidiaries and affiliate are adequately reflected in the
Positive rating actions could occur over the next 24 months, if there is
notable sustained improvement in the underwriting results and operating
profitability of ASI, especially as growth occurs in the assumed
reinsurance portfolio and the newer segments of the excess and surplus
Key factors that could trigger negative rating actions include
continuation of the recent deteriorating trend in ASI's operating
ratios, particularly if it results in the company's balance sheet being
materially impaired. Similarly, a failure to maintain adequate
capitalization in the subsidiaries or at a consolidated level will be
factors affecting the ratings adversely.
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";
"Understanding BCAR for Property/Casualty Insurers"; "Understanding
Universal BCAR"; 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 © 2013 by A.M. Best Company, Inc. ALL RIGHTS
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