A.M. Best Co. has affirmed the financial strength rating (FSR) of
A (Excellent) and issuer credit rating (ICR) of "a" of SureTec
Insurance Company (SIC), a subsidiary of SureTec Financial Corp.
The outlook for both ratings is stable. Concurrently, A.M. Best has
assigned an FSR of A- (Excellent) and an ICR of "a-" to SureTec
Indemnity Company (SINC), a recently established subsidiary of SIC.
The outlook assigned to these ratings is stable. All companies are
headquartered in Houston, TX.
The ratings of SIC recognize its superior capitalization, historically
strong operating performance driven by profitable underwriting results
and sustained favorable reserve development, as well as the financial
flexibility provided by its parent. These positive rating factors are
partially offset by SIC's elevated loss ratios in 2011 and 2012, which
were driven by contract bond losses particularly in the Florida market
(the company exited the Florida contract bond market in 2011), its
significant premium concentration within Texas and California, the
execution risk associated with geographic and product expansion and the
somewhat elevated underwriting expense ratio relative to its peer
composite. The outlook reflects A.M. Best's expectation that
management's conservative underwriting approach should deliver strong
The ratings assigned to SINC reflect its supportive levelof
risk-adjusted capitalization, the historical profitability of its
contractors license bond (CLB) book, which was assumed from SIC in 2013,
and the implicit support of SIC. These positive rating factors are
partially offset by the concentration of premium writings in California
CLBs, SINC's short operating history (operations commenced in 2013) as a
stand-alone entity and the execution risk associated with product
expansion initiatives given current market conditions. The outlook
reflects A.M. Best's expectation that results will be favorable on a
stand-alone basis and that the company will continue to receive
management and financial support from its parent.
Factors that could result in downward rating movement for SIC include a
sustained weakening in its operating earnings due to deteriorating
underwriting performance or material weakening in its overall
Factors that could result in upward movement for SIC's ratings include
an improvement in its operating earnings and resulting return on revenue
measures sustained over a period of time. Accordingly, this would
enhance SIC's ability to generate additional organic surplus growth
while strengthening its overall risk-adjusted capitalization.
Negative rating actions on SINC's ratings could occur if underwriting or
operating performance differs materially from A.M. Best's expectations
or there is a considerable deterioration in risk-adjusted capitalization
as measured by Best's Capital Adequacy Ratio (BCAR). SINC's ratings also
may be negatively impacted if its strategic importance to SIC no longer
warrants rating enhancement.
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. Best's Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.
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 © 2014 by A.M. Best Company, Inc. ALL RIGHTS
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