Ratings Roundup: Gramercy, Southern Trust
A.M. Best Co. has downgraded the financial strength rating to ‘B’ (Fair) from ‘B+’ (Good) and issuer credit rating to “bb” from “bbb-” of Dallas-based Gramercy Insurance Company (GIC), and has revised its outlook on both ratings to negative from stable. The rating actions “reflect the deterioration in GIC’s operating performance due to significant underwriting losses combined with significant premium growth that considerably has increased underwriting leverage and weakened overall capitalization through 2011,” Best explained. The ratings also “reflect the increased dependence on reinsurance to support operations given strong premium growth in recent years, as well as the execution risk associated with refocusing operations while achieving profitability projections given competitive market conditions.” However, Best cited “recent management initiatives to improve performance, including the discontinuation of GoAuto beyond 2011,” as positive rating factors. Best also noted the “additional quota share reinsurance on GoAuto and Trucking risks during the fourth quarter of 2011, which provides surplus aid,” as well as the company’s conservative investment portfolio, and sound overall liquidity position” as positive factors. Best said the revised outlook “reflects recent poor operating performance that has weakened capitalization, as well as the challenges associated with profitably refocusing operations given the increased reinsurance utilization over the near term. Further weakening in overall capitalization driven by ongoing premium growth and/or weak operating performance likely will result in additional negative rating pressure.”
A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Georgia-based Southern Trust Insurance Company. Best said the revised outlook to negative “reflects Southern Trust’s negative underwriting income in recent years, driven not only by significant weather-related losses, but also an elevated expense ratio that on a five-year basis, considerably exceeds the private passenger auto and homeowners composite. In addition, Southern Trust’s business concentration creates exposure to ongoing weather-related losses.” However best also indicated that despite the negative underwriting results, “Southern Trust maintains strong risk-adjusted capitalization, which is derived from its conservative operating strategies, favorable reserve development and conservative investment risk. In addition, Southern Trust maintains long-standing agency relationships and possesses local market expertise in its leading state of Georgia. Future rating downgrades could result if there is continued deterioration in underwriting performance or a significant erosion of Southern Trust’s capital base. Removal of the negative outlook would include, but is not limited to, several years of improved underwriting performance while maintaining strong risk-adjusted capitalization.”