OLDWICK, N.J. October 17 (BestWire) — A.M. Best Co. has downgraded the financial strength rating to B+ (Good) from B++ (Good) and issuer credit rating to “bbb-” from “bbb” of The American Road Insurance Company (TARIC) (Dearborn, MI). The outlook for both ratings is negative.
TARIC’s capitalization and operating performance has been and continues to be robust. However, its ratings were 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. The continuing solvency pressure on these entities has prompted the downgrading of the ratings.
The ratings reflect TARIC’s excellent capitalization level, history of positive operating performance, conservative reserve practices and effective management of exposures. Over the past five years, the after-tax five-year return on surplus has averaged 18.2%, while capital and surplus levels have grown at a rate of 24.6% through the accumulation of net profits.
Partially offsetting these positive rating factors are A.M. Best’s concerns regarding the operations 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.
A.M. Best remains the leading rating agency of captive insurers rating a wide variety of more than 200 captives in the United States and throughout the world.
For current Best’s Ratings and independent data on the captive and alternative insurance market, please visit http://www.ambest.com/captive.