AM Best Revises Outlooks to Negative for American Surety Company

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of American Surety Company (ASC) (Indianapolis, IN).

The ratings reflect ASC’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

The negative outlooks reflect AM Best’s concern over the company’s declining operating performance and return measures primarily as a result of its rising five-year average combined ratio that compares unfavorably with the Fidelity & Surety Composite measure. The company’s rising combined ratio resulted from a material decline in written and earned premium, and corresponding rise in its underwriting expense ratio. The decline in premium volume was caused primarily by the termination of its largest agent in California.

ASC has reported favorable pre-tax operating and net income in each of the past years, but the overall trend in these metrics has declined. As a result, pre-tax and total returns on revenue and equity trail the Fidelity & Surety Composite, as well as similarly sized peers. In addition, the company’s combined and operating ratios have experienced the same trend mainly due to underwriting expenses, and in 2018 these ratios were above break-even.

Policyholder surplus has declined over the past five years from dividends paid to its parent holding company, Eighth Amendment Holdings, Inc. Lastly, AM Best has concerns with challenging market conditions in the bail industry particularly in those states in which the company writes business that have legislative and ballot initiatives to change the cash bail system, specifically California, Indiana, New York, Ohio and Texas.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190424006037/en/

Kevin Dorsey
Senior Financial Analyst
+1 908 439 2200, ext. 5401
[email protected]

Joseph Burtone
Director
+1 908 439 2200, ext. 5125
[email protected]

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
[email protected]

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
[email protected]

Source: AM Best

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