GMAC Downgraded

A.M. Best Co. downgraded the financial strength rating to “A” (Excellent) from “A+” (Superior) of GMAC Insurance Group. The rating outlook is stable.

The rating reflects the diminished financial strength of the ultimate parent company, General Motors Corp., which is driven by significant pension costs. As a result, GMAC may potentially be burdened to support the ultimate parent company through increased dividend demands. The lack of future cash generation by the parent to fund the pension plan will further reduce the overall organization’s financial strength.

Additional negative factors include the group’s increasing underwriting leverage and high investment leverage driven by exposure to fluctuating market values that are related to the equity portfolio. Surplus losses in recent years have been driven by the unfavorable performance of the equity portfolio and parental dividends. These losses, combined with premium growth, have resulted in gradually increasing underwriting leverage. Further, a large portion of the group’s business, extended warranty and non-standard automobile, is exposed to downturns in economic conditions.

Despite these negative factors, the excellent rating reflects the group’s strong stand-alone capitalization, consistently solid operating results, well-established market presence as one of the top 35 property/ casualty insurers in the United States and a leading provider of extended service contracts. These positive rating attributes are derived from management’s focused operating strategy, extensive product knowledge, diversified product offerings and multiple distribution channels. The group has consistently generated capital through operating earnings, which reflects disciplined underwriting, an efficient expense structure and a steady stream of investment income.