A.M. Best Upgrades Ratings of The American Road Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has upgraded the financial strength rating to A (Excellent) from A- (Excellent) and issuer credit rating to “a” from “a-” of The American Road Insurance Company (TARIC) (Dearborn, MI). The outlook for both ratings is stable.

TARIC’s capitalization and operating performance has been and continues to be robust. However, its ratings are the result of its immediate parent, Ford Motor Credit Company LLC (Ford Credit) and ultimate parent, Ford Motor Company’s (Ford) [NYSE: F] operating challenges, which act as a constraint on TARIC’s rating profile. Nevertheless, the upgrading of TARIC’s ratings reflects Ford’s successful implementation of its restructured business plan, continued strong competitive product portfolio, which has resulted in significantly improved financial performance and credit metrics. Ford’s full-year 2011 financial results and increased market share act as evidence to support the company’s progress toward returning to lower default risk.

The ratings also recognize TARIC’s excellent capitalization level, history of positive operating performance, conservative reserve practices and effective management of exposures. Over the past five years, the company’s after-tax five-year return on surplus has averaged 17% and has consistently logged operating income in each year. Capital and surplus levels have declined 44% over the same period. The decline is primarily attributed to extraordinary dividends of $432 million to Ford Credit over a five-year period beginning in 2007; reflective of TARIC’s established dividend policy. However, TARIC’s surplus growth levels have been through the accumulation of net profits, and the company continues to maintain an excellent level of capitalization.

Partially offsetting these positive rating factors are A.M. Best’s concerns regarding the operation and profitability of Ford Credit and Ford and the potential impact of these entities on the operations of TARIC. An additional offsetting rating factor is the moderate amount of credit risk assumed by TARIC with placement of reinsurance to an offshore affiliate. Although TARIC’s ceded leverage is well above that of its peer companies, nearly all of its ceded reserves are backed by a trust account with TARIC named as the sole beneficiary.

TARIC’s ratings are well positioned at the current levels; as a result, an upward movement is unlikely over the medium term. Nevertheless, the potential for negative rating actions could result if volatility in operating performance exceeds A.M. Best’s expectations and results in a significant prolonged decline in risk-adjusted capitalization. In addition, deterioration in the credit profile of Ford Credit could impact TARIC’s ratings.

A.M. Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated in the United States and throughout the world.

For current Best’s Credit Ratings and independent data on the captive and alternative insurance market, please visit www.ambest.com/captive.

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”; and “Catastrophe Analysis in A.M. Best Ratings.” 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.
Alexander Sarfo
Senior Financial Analyst
908-439-2200, ext. 5779
[email protected]
or
Steven Chirico, CPA
Assistant Vice President
908-439-2200, ext. 5087
[email protected]
or
Rachelle Morrow
Senior Manager, Public Relations
908-439-2200, ext. 5378
[email protected]
or
Jim Peavy
Assistant Vice President, Public Relations
908-439-2200, ext. 5644
[email protected]

Source: A.M. Best Co.