AM Best Removes From Under Review With Developing Implications and Affirms Credit Ratings of Preferra Insurance Company Risk Retention Group

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)--
AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Preferra Insurance Company Risk Retention Group (Preferra RRG) (Washington, D.C.). The outlook assigned to these Credit Ratings (ratings) is stable.

The ratings reflect Preferra RRG’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).

The ratings for Preferra RRG were placed under review with developing implications on Sept. 6, 2024, due to its separation from NASW Insurance Company (NASWIC), a former affiliate that served as a reinsurer through a quota share agreement. The rating action was based on the decision of both entities to operate on a stand-alone basis and be evaluated individually by AM Best.

The removal of the under review with developing implications and affirmation the ratings are based on Preferra RRG’s improved financial condition that does not require it to maintain a quota share agreement with NASWIC. Preferra RRG was capitalized with surplus notes that are held by NASWIC and NASW Assurances Services, Inc. (ASI), the parent for NASWIC, and the notes will remain in effect until 2037 and 2040, respectively. In addition, Preferra RRG appointed a managing general agent to provide a series of services including marketing and underwriting functions. All key staff and key third-party vendors will remain in place going forward.

Preferra RRG’s balance sheet strength assessment is supported by strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), generally stable loss-reserving trends, a conservative investment portfolio that includes mostly fixed-income securities and strong liquidity measures that are enhanced by consistently positive underwriting and operating cash flows. Partially offsetting the positive factors are Preferra RRG’s limited financial flexibility and scale of operations.

Preferra RRG’s operating performance assessment is based on its strong pre-tax and total return measures (i.e., revenue and equity) that have outperformed the commercial casualty composite and industry on a five- and 10-year average basis and profitable underwriting results augmented by investment income. The profitable underwriting performance is demonstrated by a favorable pure loss ratio that compares favorably with commercial casualty composite and industry averages. This is partially offset by an underwriting expense ratio that compares unfavorably with industry averages. Prospectively, the expense ratio is expected to be in the low- to mid-50s range, primarily due to many expenses that were shared with ASI and NASWIC.

Preferra RRG’s limited business profile assessment is based on its limited product diversification as it underwrites professional liability and general liability in a highly competitive marketplace. However, it maintains a strong niche market in the social workers’ marketplace with a solid management team with a solid track record.

Preferra RRG’s ERM assessment of appropriate is based on its capabilities that are considered appropriate and well-aligned with the risk profile. The ERM framework is reviewed on a regular basis by the senior management team and the board of directors. The reinsurance programs are solid with strong partners, which aids in mitigating large severity claims.

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 use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.