A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Chicago-based Virginia Surety Company, Inc, both with positive outlooks.
The rating affirmations for Virginia Surety reflect its “strong capitalization, profitable operating results and specialty niche underwriting expertise, as well as its leadership position in the extended warranty market,” Best explained.
Virginia Surety also benefits from its “extensive database, broad administrative capabilities and the company’s ability to integrate its products and services across its broad client distribution channel,” the report continued. “The ratings also take into consideration the unlimited guarantee and indemnification provided by National Indemnity Company, for the run-off of all non-warranty business written prior to the 2006 acquisition of The Warranty Group, Inc., and its subsidiary, Virginia Surety by the current owner, Onex Corporation.”
However, Best also pointed out that these Virginia Surety’s “level of dividends over the last few years, its long-term ownership uncertainty (given the company’s current ownership status), its high gross underwriting leverage and the credit risk associated with non-rated unauthorized captive reinsurers” should be considered as offsetting factors.
Best did indicate that the “recoverable risk is somewhat mitigated through the use of collateral via letters of credit and funds held on recoverable balances. Despite these attenuating factors, the positive outlook is based upon the expectation for continued profitability and the maintenance of supportive capitalization.”
In addition Best pointed out that Virginia Surety and its affiliated companies “are the largest underwriters of consumer extended warranties worldwide. Underwriting activities principally include coverage for extended warranty programs on automobiles, household appliances, consumer electronics, credit card enhancement programs and nonstructural home warranty.
The positive outlook reflects the likelihood Virginia Surety’s ratings will be upgraded over the next 12 to 36 months pending sustained profitability in its core businesses, continued capital growth, a supportive level of capital and its ability to attract and retain new and existing distribution partnerships. The outlook also is contingent on The Warranty Group, Inc. maintaining a conservative financial leverage and liquidity profile, which would afford Virginia Surety further financial flexibility, if necessary.”
On the negative side Best said the “ratings/outlook of the company could be downgraded if capitalization and/or operating performance falls markedly short of A.M. Best’s expectations, including any significant deterioration in loss trends, any sudden and unforeseen disruption in its distribution channels and any material changes in holding company financial leverage, liquidity and GAAP interest coverage ratios.”
Source: A.M. Best
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