AM Best: Outlooks Revised to Negative for Southern Vanguard Insurance

AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Texas-based property/casualty insurance company, Southern Vanguard Insurance Co. (SVIC).

Southern Vanguard underwrites policies for its parent, Houston-based RHP General Agency, a licensed managing general agency that writes residential property through a network of independent insurance agents.

The ratings reflect SVIC’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

The negative outlooks reflect the recent increase in the holding company’s (InsVest Corp) unsecured debt position through a newly issued debt facility. The debt was utilized to buy out minority shareholders.

Although management has a good history of keeping borrowing costs low, paying down debts quickly with strong profits from the managing general agency and maintaining moderate leverage measures, the most recent debt balance (as of first quarter of 2021) is considered elevated per AM Best Methodology guidelines.

In addition, while SVIC has generated positive net income in each of the past five years, potential plans to grow writings in 2021 in a new operating territory (Florida) that is catastrophe prone will add execution risk to its current business plan and additional new risks onto its books of business.

However, AM Best expects SVIC’s growth to be conservative, and the company plans on implementing a significant quota share reinsurance program on a majority of this business. Negative rating action may result if growth plans at SVIC result in adverse performance to the book of business, or if leverage at the holding company remains elevated or if management does not meet it pay-down schedule.