A.M. Best Co. has upgraded the financial strength rating to B+ (Very Good) from B (Fair) of Peace Hills General Insurance Company (Peace Hills) (Alberta, Canada). The rating outlook is stable.
The rating reflects Peace Hills’ excellent capitalization and strong balance sheet, profitable operating performance, sound liquidity and conservative reserve position. Partially offsetting these rating strengths are the company’s elevated leverage position, above average investment risk with below average returns, as well as its concentration of risk in the challenging property/casualty insurance market in Alberta.
Peace Hills’ risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is excellent and reflective of the company’s strong balance sheet relative to the risks it assumes. The improvement in the company’s results has been achieved through controlled growth and sound underwriting which has produced better than average profitability over the last five years. Peace Hills’ profitability has benefited from the company’s conservative reserving practices, having consistently produced redundancies on both a calendar year and accident year basis.
Leverage ratios have trended downward; however, they remain above the industry norm, indicating an above average exposure to pricing errors and underestimation of policyholders’ liabilities. Investment risk is also elevated due to Peace Hills’ above average investment in common shares. Investment returns have also lagged behind the industry average.
Furthermore, Peace Hills’ is primarily concentrated in the province of Alberta which exposes the company to severe weather related risks, localized market competition, and regulatory constraints.
A.M. Best remains concerned about the effects that recent regulatory changes to the Alberta automobile insurance product will have upon long-term profitability. These concerns are partially mitigated by the company’s experienced management team and a comprehensive reinsurance program with quality reinsurers to protect surplus.
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