AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Ratings of “bbb” (Good) of First American Property & Casualty Insurance Co. and First American Specialty Insurance Co.
The outlook of these Credit Ratings is negative. The companies collectively referred to as First American PC Companies (FAPCC) and they are domiciled in Santa Ana, Calif.
Concurrently, AM Best reported it has withdrawn the ratings following the company’s request to no longer participate in AM Best’s interactive rating process.
“The ratings reflect FAPCC’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management,” AM Best stated.
FAPCC primarily provides homeowners and renters insurance, with a geographic concentration in the U.S. Western region. According to AM Best, the group’s operating results have been on a downward trend due to increased claim frequency and severity.
“The group reported underwriting losses in 2017 and 2018, driven largely by the unprecedented California wildfire activity, which also caused pressure on its balance sheet strength,” AM Best stated. “The fires losses diminished during 2019, but the group’s operating results remained unfavorable through year-end 2020. The group’s operating performance continues to be marginal; its surplus decreased an additional 5% since year-end 2019, which has added pressure to its balance sheet strength.”
The parent company has also entered into book transfer agreements with two third party insurers to transfer its property/casualty policies and expects the transfers to be completed by the end of the third quarter of 2022, according to AM Best.
“The negative outlooks reflect the potential for future loss emergence, loss reserve development and further deterioration in risk-adjusted capitalization,” AM Best stated. “There is also concern relating to the book transfer agreements, their effects on senior leadership, employee turnover and risk management.”
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