AM Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb” of MGA Insurance Co. Inc. (MGA), a property/casualty insurance operation based in Dallas, Texas.
The outlook for the FSR remains stable.
With a concentration on the non-standard auto insurance market, MGA conducts the insurance operations of its parent company, GAINSCO Inc., which is based in Dallas and has a regional office in Miami, Fla.
AM Best said the ratings reflect MGA’s balance sheet strength, which is categorized as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
The revision in the Long-Term ICR outlook reflects improvement in underwriting and operating performance in recent years, driven by management’s focus on underwriting discipline, rate adjustments to counter rising industry loss costs, proactive management of open claims and other risk management actions.
As a result, the company’s combined and operating ratios compare favorably with the private passenger standard and non-standard automobile composites.
AM Best expects that the company’s underwriting and operating performance will remain favorable over the near-term and continue to bolster balance sheet strength.
MGA’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), was very strong in 2019 and through the first quarter of 2020. This reflects an improvement from prior years largely due to a reduction in stockholder dividends paid to its parent company, GAINSCO Inc.
These factors are partially offset by the company’s modestly elevated underwriting leverage and areas of adverse loss reserve development, largely related to its Florida book of business. As a result, MGA has reduced its exposure in Florida over the past five years to reduce the potential risks from high impact personal injury protection litigation.
The ratings also contemplate the company’s concentration of risk in the non-standard auto lines and geographic concentration, as well as the execution risk associated with management’s geographic expansion into new states.
Source: AM Best
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