OLDWICK, N.J.--(BUSINESS WIRE)--
A.M. Best Co. has downgraded the financial strength rating (FSR)
to C (Weak) from C+ (Marginal) and issuer credit ratings (ICR) to “ccc”
from “b-” of Affirmative Insurance Company(Burr Ridge, IL) and
its subsidiaries, collectively known as Affirmative Insurance Group.
A.M. Best also has affirmed the FSR of C (Weak) and the ICR of "ccc" of Affirmative
Insurance Company of Michigan (AICMI) (Bingham Farms, MI).
Concurrently, A.M. Best has withdrawn the ratings of AICMI at the
In addition, A.M. Best has downgraded the ICR to "c" from "cc" of the
parent company, Affirmative Insurance Holdings, Inc.
(Affirmative) (headquartered in Addison, TX) [NASDAQ: AFFM]. The outlook
for all ratings is negative. (See below for a detailed list of the
The downgrades of the members of the Affirmative Insurance Group reflect
its weak risk-adjusted capitalization based on Best’s Capital Adequacy
Ratio (BCAR) and unfavorable operating results. Earnings for 2011 fell
significantly below projections, and underwriting performance in recent
years has been adversely impacted by losses mainly from competitive
pricing, higher than expected severity of automobile personal injury
protection claims and adverse reserve development. The group’s operating
history was marked by weak internal controls over operations and
aggressive growth in challenging markets.
In addition, financial leverage at Affirmative is excessive due to debt,
and its debt servicing ability is contingent upon fee income generated
from insurance company production. Premium growth has been down
significantly over the last five years, and a continuation of this trend
may result in lower fee income to service the debt. In A.M. Best’s
opinion, the holding company carries an above average risk of default on
its debt, which puts pressure on the ratings of its insurance
subsidiaries. However, the insurance subsidiaries may not pay dividends
without prior regulatory approval due to their negative unassigned
These concerns are partially offset by remedial action begun in 2010,
with a change in senior management, discontinued operations in Florida
and Michigan, cancellation of unprofitable agents, increased premium
rates, stricter underwriting and internal controls and actions to reduce
expenses. As a result of the decision to exit the Michigan non-standard
auto market, AICMI was placed in voluntary run-off, and management has
requested that the ratings for this company be withdrawn.
The negative outlook reflects the organization's continued negative
trend in capitalization, operating performance and financial leverage
and the challenges management faces to make significant lasting
improvements given weak economic conditions and challenging underwriting
and investment markets. The ratings may be further downgraded if
capitalization continues to weaken. However, a favorable earnings trend
that leads to capital appreciation without excessive growth may lead to
a stable ratings outlook and potentially a ratings upgrade.
The FSR has been downgraded to C (Weak) from C+ (Marginal) and the ICR
to “ccc” from “b-” for the following members of Affirmative Insurance
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”; “Catastrophe Analysis in A.M. Best Ratings”; “Insurance
Holding Company and Debt Ratings”; “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 © 2012 by A.M. Best Company, Inc.ALL RIGHTS
A.M. Best CompanyCharles M. Huber, 908-439-2200, ext.
5122Senior Financial Analystcharles.firstname.lastname@example.orgRachelle
Morrow, 908-439-2200, ext. 5378Senior Manager, Public
Burtone, 908-439-2200, ext. 5125Assistant Vice Presidentjoseph.email@example.comJim
Peavy, 908-439-2200, ext. 5644Assistant Vice President,
Source: A.M. Best Company