AM Best has downgraded the Financial Strength Rating to B++ (Good) from A (Excellent) and the Long-Term Issuer Credit Ratings to "bbb" from "a" of First American Property & Casualty Insurance Company and First American Specialty Insurance Company, collectively referred to as First American PC Companies (FAPCC). The outlook of these Credit Ratings (ratings) has been revised to negative from stable. These companies are domiciled in Santa Ana, CA.
The ratings of FAPCC no longer include partial rating enhancement from its parent due to the parent’s initiation of a process to sell its property/casualty business, and reflect FAPCC’s balance sheet strength, which AM Best categorizes as adequate, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.
FAPCC primarily provides homeowners and renters insurance throughout the United States, with a geographic concentration in the Western region. The group’s operating results have been on a downward trend due to increased claim frequency and severity, which adds strain to its balance sheet strength. The group reported underwriting losses in 2017 and 2018, which was driven largely by the unprecedented California wildfire activity, which also caused pressure on its balance sheet strength. In 2019, the fires losses improved, but the group’s operating results remain unfavorable. As the group’s operating performance continues to be marginal, it has added pressure to its balance sheet strength in which surplus decreased over 20% since year-end 2019. Additionally, the parent has initiated a process for the sale of its property/casualty business. As a result, the ratings of FAPCC no longer include partial rating enhancement from its parent, as FAPCC is no longer considered to be a strategic member of the group.
The negative outlooks reflect the potential for future loss emergence, loss reserve development and further deterioration in risk-adjusted capitalization. There also are some concerns relating to the planned divestiture, its effects on senior leadership, employee turnover and risk management.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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