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A.M. Best Revises Outlooks to Stable for The Guarantee Company of North America and The Guarantee Company of North America USAA.M. Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of "a" of The Guarantee Company of North America (The Guarantee) (Toronto, Ontario, Canada). Concurrently, A.M. Best has revised the outlooks to stable from negative and affirmed the FSR of A (Excellent) and the Long-Term ICR of "a" of The Guarantee's subsidiary, The Guarantee Company of North America USA (The Guarantee USA) (Southfield, MI). The revision of The Guarantee's Credit Rating (rating) outlooks reflects the company's improved core underwriting and reserving performance, supported by its prominent market profile and strong capitalization. Overall operating results have rebounded from earlier levels and The Guarantee's performance also has begun to be comparable with industry composite results. The Guarantee's management team implemented numerous initiatives over the past few years to restore underwriting profitability. These initiatives included tightening underwriting guidelines, more aggressive rate taking, implementing a new software system, placing a stronger focus on brokers and introducing a new contingent commission format. Marked improvement was evident in the company's core loss ratio results, as overall performance began to compare again with that of similarly rated companies. These initiatives continue to exert temporary pressure on the expense ratio, as does management's rebalancing of its personal lines and its focus on specialty lines, which have inherently higher commission rates and underwriting costs. In the wake of the Ft. Mc Murray fire, the single most expensive insurance loss in Canadian history, The Guarantee's losses amounted to an earnings event and underscored the renewed strength of its operating performance, which is supported by the company's strong capitalization, prominent market profile, prudent reinsurance program, strong investment returns and improving overall reserve development patterns. As the oldest surety company in North America, The Guarantee has a prominent market profile, particularly in surety and other specialty lines. The Guarantee remains exposed to execution risk in several areas, including lowering its somewhat elevated exense ratio, improving upon its average, though not yet superior, performance compared with that of its peers and continuing to improve its reserve performance, as well as coalescing its myriad changes and improvements into sustained and consistent performance in the near to midterm. A.M. Best does not expect any negative rating actions on The Guarantee in the near to intermediate term. However, such actions would ensue if the company incurred material losses in capitalization; experienced reduced profitability in their core books of business; was unable to contain exposure to adverse development within their liability reserves with the current set of preventative measures; or encountered substantial catastrophe losses relative to their peers, as well as the industry's averages. The revision in The Guarantee USA's rating outlooks reflects the underwriting and operating performance of its parent, The Guarantee. The Guarantee USA's ratings reflect its excellent risk-adjusted capitalization, improved operating performance, steady investment income, good leverage position and the implicit and explicit support it receives from The Guarantee. While operating income has been positive for the past five years, the company's underwriting performance remained volatile through 2012. However, the company has posted underwriting profits since 2013, which have improved the parent's performance during the recent years. The Guarantee USA has benefited greatly from its parent's commitment of resources to reorganizing and streamlining its operation. The parent and subsidiary's objectives and initiatives are in lockstep. These initiatives include continued efficiencies and synergies through integrated business systems, rebalancing of the branch network system, strengthening underwriting guidelines and mirroring claims management practices of the parent company. A.M. Best does not expect to lower (or place a negative outlook on) the ratings of The Guarantee USA in the near to intermediate term. Such actions would ensue if the company's relationship to its parent or its parental support changed in a manner that affects the operational stance of the company; if The Guarantee was to incur material losses in its capitalization; had a relapsed reduction in the profitability of their core books of business; was unable to contain exposure to adverse development within their liability reserves with the current set of preventative measures; or had substantial catastrophe losses relative to their peers, as well as the industry's averages. This press release relates to Credit Ratings that have been published on A.M. 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 A.M. Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best's Credit Ratings. A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2016 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.
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