Outlook for Dallas-Based MGA Insurance Revised to Positive

A.M. Best has revised the outlook to positive from stable for the issuer credit rating (ICR) of MGA Insurance Co. Inc. (MGA) in Dallas and affirmed its ICR of “bbb.”

Concurrently, A.M. Best has affirmed the financial strength rating of B++ (Good). The outlook for the FSR remains stable.

The revised outlook reflects MGA’s recent trend of profitable underwriting performance, operating earnings and consistent risk-adjusted capitalization.

In 2014, MGA reported its second consecutive year of underwriting profit due to its comprehensive risk management strategies and by reducing Florida personal injury protection (PIP) fee litigations.

In addition, MGA’s net income remains positive over the past five years and is reflective of underwriting gains in three of these years and a steady stream of favorable net investment income along with capital gains. As a result, the company’s five-year combined ratio and total operating returns compare favorably to the private passenger non-standard automobile composite.

Management continues to focus on improving its operating performance through various risk management strategies including rate adjustments and refining its underwriting criteria. Furthermore, MGA maintains a fairly conservative investment portfolio and moderate underwriting leverage measures.

These positive rating factors are partially offset by MGA’s unfavorable loss reserve development over the past five years and geographic concentration of risk.

While the company operates in several states, a majority of the company’s business is conducted in Florida and Texas, which exposes its results to regulatory, judicial and economic concerns.

This was particularly evidenced in 2012 by the increased Florida PIP fee litigations that resulted in sizable underwriting losses and prior year adverse loss reserve development. To partially mitigate this risk, management has been de-emphasizing Florida’s exposure along with its significant rate increase.

Subsequently, the amount of calendar year loss reserve deficiency has been on the decline while accident year loss reserve development has rebounded favorably in recent years.

Positive rating action in future rating cycles is contingent upon continuation of MGA’s favorable operating performance, surplus growth, and improving loss reserve development while maintaining adequate capitalization and moderate underwriting leverage.

Conversely, negative rating pressure could occur if MGA has material losses in its capitalization, severe reduction in profitability and/or substantial adverse loss reserve development.

Source: A.M. Best