A.M. Best has affirmed the financial strength rating (FSR) of ‘A++’ (Superior) and the issuer credit ratings (ICR) of “aaa” of the members of Government Employees Group (GEICO), based in Chevy Chase, Maryland, as well as the ICR of “aaa” and the debt rating of “aaa” on $150 million 7.35 percent senior unsecured debentures, due 2023, of the immediate parent holding company, GEICO Corporation, based in Wilmington, Delaware.
The outlook for all of the ratings is stable.
The rating affirmations reflect “GEICO’s solid risk-adjusted capitalization, continued strong operating performance, brand name recognition and preeminent national market position in the personal automobile segment,” Best explained.
“GEICO’s strong operating results reflect a considerable underwriting expense advantage, driven by its direct distribution business model. In addition, the group continues to produce favorable loss experience while benefiting from a solid stream of investment income. As a result, GEICO has generated substantial capital over the previous five-year period, which has supported steady growth in premiums and enabled it to pay significant dividends to GEICO Corporation.”
In addition Best specified that all of the ratings “recognize the considerable resources and financial strength of GEICO Corporation’s parent company, National Indemnity Company, as well as its ultimate parent, Berkshire Hathaway Inc., whose financial profile includes approximately $227.6 billion of stockholders’ equity at March 31, 2014, minimal debt and a long history of strong profitability. Moreover, GEICO Corporation maintains modest financial leverage and strong cash flows to fund fixed charges.”
As far as GEICO’s negative rating factors are concerned, Best said they “include high investment leverage derived from its significant allocation of invested assets to unaffiliated equities, which could lead to fluctuations in its risk-adjusted capitalization due to market swings, as evidenced by the stock market downturn in 2008.”
They also include the fact that “GEICO maintains a modest geographic concentration that exposes it to legislative changes and judicial decisions, as its top five states account for slightly more than half of its direct premiums written. However, this risk is largely mitigated by GEICO’s geographic spread throughout the United States and management’s proven ability to quickly adapt to changing market conditions.”
In conclusion Best said it “believes that the members of GEICO are well positioned at their current rating levels. If either deteriorating underwriting results or an equities market downturn result in a significant decline in risk-adjusted capital, negative rating pressure would be exerted on the ratings.
Best summarized the companies affected by its rating actions as follows:
The FSR of ‘A++’ (Superior) and the ICRs of “aaa” have been affirmed for the following members of Government Employees Group:
Government Employees Insurance Company
GEICO Indemnity Company
GEICO Casualty Company
GEICO General Insurance Company
GEICO Advantage Insurance Company
GEICO Choice Insurance Company
GEICO Secure Insurance Company
GEICO County Mutual Insurance Company
Source: A.M. Best
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