Best Affirms American Safety Ratings

February 22, 2012

A.M. Best Co. yesterday [Feb. 21] affirmed the financial strength rating of ‘A’ [Excellent] and issuer credit ratings of “a” of the insurance operating subsidiaries of Bermuda-based American Safety Insurance Holdings, Ltd. [ASI], which includes: American Safety Casualty Insurance Company, based in Oklahoma City, American Safety Indemnity Company, also in Oklahoma City, Bermuda-based American Safety Reinsurance, Limited [ASRE] and its affiliate, American Safety Risk Retention Group, Inc. , which is based in Vermont

Best said the ratings are “based on the consolidated financial condition and operating performance of ASRE and its three US domestic subsidiaries and affiliate entities, with each one receiving significant quota share reinsurance support from ASRE.” Best also affirmed the ICR of “bbb” of ASI. The outlook for all ratings is stable.

Best explained that the ratings reflect the “excellent consolidated capitalisation of the ASI entities, their solid overall operating results and the effective management of their insurance operations. The ratings also recognize ASI’s underwriting expertise in its niche markets, with customized risk management programs and loss control services.”

As a partial offsetting factor Best cited “the variability of the underwriting results of some of the group’s entities.”

Best described ASI’s overall capitalization as “excellent considering its manageable underwriting leverage and modest investment leverage. ASI has taken advantage of its niche market expertise and focus to sufficiently generate operating earnings in support of business expansion and premium growth in recent years, providing a solid capital base to support its various business risks. However, its sizeable reinsurance recoverables make the entities in particular vulnerable to the associated credit risks.”

Despite that fact, or perhaps in recognition of it, Best added that “by raising its retentions and increasing the utilization of ASRE as a reinsurer for its entities, ASI has reduced its reliance on external reinsurance.” As a result Best indicated that it expects ASI “to continue to provide explicit support as needed to ensure the capitalization of ASRE and the entities adequately reflects the ratings.

“Positive rating actions could occur over the medium-to-long term, if there is notable improvement in the operating profitability of ASI—via sustained favorable underwriting results—especially with the new business written over the last few years, particularly as the assumed reinsurance portfolio matures.

“Key factors that could trigger negative rating actions include a sustained, downward trend in ASI’s operating results that materially impairs its balance sheet and a failure to maintain adequate capitalization in the subsidiaries or at a consolidated level.

American Safety Insurance Holdings, Ltd. was formed in 1986 as a captive insurance company in Bermuda. The firm initially pioneered providing insurance solutions to environmental remediation businesses in the United States at a time when insurance coverage for these risks was virtually unavailable.

Today American Safety Insurance Holdings provides customised insurance products and solutions to small and medium-sized businesses.

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