A.M. Best Affirms the Ratings of Castle Key Group Members

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has affirmed the financial strength rating (FSR) of B- (Fair) and issuer credit ratings (ICR) of “bb-” of the members of Castle Key Group (Castle Key) (headquartered in St. Petersburg, FL). The outlook for all ratings is negative. (See below for a detailed listing of companies.)

The ratings and outlook reflect Castle Key’s unprofitable operating performance and poor risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Castle Key is the dedicated Florida property writer for its parent company, Allstate Insurance Company (Allstate), and it maintains significant exposure to hurricanes, with a corresponding substantial reliance on catastrophe reinsurance. In addition, Castle Key’s reinsurance program relies heavily upon the Florida Hurricane Catastrophe Fund (FHCF). A.M. Best remains concerned regarding the ability of the FHCF to fund all obligations in the event of a severe hurricane, largely based on its contingent capital structure. This contributes to A.M. Best’s negative view regarding the adequacy of Castle Key’s catastrophe reinsurance program in the case of a significant catastrophe event.

A.M. Best deviated from its “Rating Members of Insurance Groups” criteria by providing more than two FSR levels of rating enhancement to Castle Key’s stand-alone assessment. However, the additional rating enhancement acknowledges the historical financial and operational support provided to Castle Key as part of the Allstate organization. Although Castle Key is separately capitalized and not reinsured by Allstate, in A.M. Best’s opinion parental support regarding the claims paying ability of Castle Key will be maintained commensurate with its rating level in the event of frequent and/or severe hurricane activity. If parental support is not provided, it would be necessary for A.M. Best to re-evaluate the current FSR of A+ (Superior) and ICRs of “aa-” of Allstate and all the remaining members of the Allstate Insurance Group.

Future positive rating actions may result from Castle Key producing more favorable underwriting results along with capital preservation. However, negative rating actions could result if parental support was not provided in case of a significant event.

The FSR of B- (Fair) and ICRs of “bb-” have been affirmed for the following members of the Castle Key Group:

• Castle Key Insurance Company
• Castle Key Indemnity Company
• Encompass Floridian Insurance Company
• Encompass Floridian Indemnity Company

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”; “Understanding BCAR for Property/Casualty Insurers”; “Catastrophe Analysis in A.M. Best Ratings”; 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 RESERVED.

A.M. Best Co.
Michael T. Venezia, 908-439-2200, ext. 5034
Senior Financial Analyst
[email protected]
or
Gary Davis, 908-439-2200, ext. 5665
Assistant Vice President
[email protected]
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
[email protected]
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
[email protected]

Source: A.M. Best Co.