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AM Best Revises Outlooks to Positive for Discovery Insurance Company
[July 30, 2020]

AM Best Revises Outlooks to Positive for Discovery Insurance Company


AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of "bb+" of Discovery Insurance Company (Discovery) (Kinston, NC).

The Credit Ratings (ratings) reflect Discovery's balance sheet strength, which AM Best categorizes as adequate, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).

The revised outlooks reflect risk-adjusted capitalization at the strongest level, supported by premium leverage that has trended lower in recent years to a level comparable with the composite. The balance sheet further benefits from the investment portfolio that is weighted toward high quality fixed-income securities with solid liquidity levels enhanced by service fee income. These strengths are offset partially by limited financial flexibility and scale of operations, above average common stock leverage and reinsurance dependence that is well in excess of the composite as 100% of the company's auto liability premiums and losses (excluding unallocated loss adjustment expenses) are ceded to the North Carolina Reinsurance Facility. AM Best expects Discovery's overall balance sheet strength will continue to be supported by that strongest level of risk-adjusted capitalization, decreased underwriting leverage metrics and organic surplus growth through profitable operations.

Discovery's adequate operating performance reflects pretax operating income reported in each of the last five years driven by net investment income and other income, partially offset by volatile underwriting results. Thelimited business profile reflects the company's product and geographic concentration as an insurer of private passenger non-standard auto liability and physical damage insurance operating exclusively in North Carolina. AM Best considers the company's ERM program to be marginal as the framework continues to evolve with improvements in reporting and auditing functions.



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 media use of Best's Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best's Credit Ratings and AM Best Rating Action Press Releases.

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 New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.


Copyright © 2020 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.


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