A.M. Best Co. has removed from under review with negative
implications and affirmed the financial strength rating (FSR) of B
(Fair) and issuer credit ratings (ICR) of "bb" of American Service
Insurance Company Inc. and American Country Insurance Company
(both domiciled in Elk Grove Village, IL). In addition, A.M. Best has
removed from under review with developing implications and affirmed the
FSR of B (Fair) and ICR of "bb" of the newly acquired Gateway
Insurance Company (Gateway) (St. Louis, MO). All three companies are
subsidiaries of Atlas Financial Holdings, Inc. (Atlas) (Cayman
Islands) (TSXV: AFH). These companies operate under an intercompany
reinsurance pooling agreement and are collectively referred to as American
Service Pool (ASI Pool). Concurrently, A.M. Best has removed from
under review with negative implications and affirmed the ICR of "b-" and
the debt rating of "ccc" of $18 million 4.5% preferred shares of Atlas.
At the same time, A.M. Best has withdrawn the debt rating. The outlook
assigned to all the remaining ratings is stable.
The rating actions follow the regulatory approval of a definitive
agreement under which Atlas acquired all of the issued and outstanding
shares of Camelot Services, Inc. and its wholly owned subsidiary,
Gateway. In addition, effective January 1, 2013, ASI Pool's intercompany
reinsurance pooling agreement was revised to add Gateway as a
The rating affirmations reflct a level of execution risk associated
with ASI Pool management's refocusing on its core lines of business
while attempting to meet business plans and grow its premiums during a
time of competitive market conditions, as well as during the run off of
unprofitable business written while the pool was under the control of
prior ownership. In addition, there is inherent risk associated with
integrating Gateway's taxi business into the existing pool's
infrastructure as well as handling Gateway's commercial truck run off.
These negative rating factors are partially offset by ASI Pool's
improving risk-adjusted capitalization, which is supportive of its
current ratings, its management team with extensive experience in its
targeted commercial auto lines of business and the potential for
improved earnings, as was the case in 2012, as management focuses on
historically profitable lines of business and runs off non-core lines
and books produced by general and managing general agents.
While A.M. Best believes the ASI Pool is well positioned at its current
rating level, factors that may lead to negative rating actions include
further deterioration in its underwriting and operating performance,
increased magnitude of adverse loss reserve development and the erosion
of surplus that could cause a decline in the pool's risk-adjusted
capital position. Factors that may lead to positive rating actions
include stabilization of the pool's loss reserve position, improved
operating profitability and enhanced risk-adjusted capitalization.
The methodology used in determining these ratings is Best's Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best's rating process and contains the different rating criteria
employed in the rating process. Key criteria utilized include: "Risk
Management and the Rating Process for Insurance Companies"; "Insurance
Holding Company and Debt Ratings"; "Understanding Universal BCAR";
"Equity Credit for Hybrid Securities"; "Understanding BCAR for
Property/Casualty Insurers"; and "Rating Members of Insurance Groups."
Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more
information, visit www.ambest.com.
Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS
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