AM Best downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to ‘bbb+’ (Good) from ‘a-‘ (Excellent)
The credit ratings (ratings) reflect the strength of ATI’s balance sheet, which AM Best rates as very strong, as well as its marginal operating results, limited business profile and appropriate corporate risk management.
The downgrade reflects ATI’s continued deterioration in net premiums written, which has put increased pressure on the company’s key underwriting ratios. The company has reported declines in premiums in each of the past five years, primarily resulting from reductions in NCCI’s loss costs, which the company uses to calculate premiums. This trend has accelerated in recent years, with ATI reporting double-digit percentage premium declines in each of the past three years, including further declines in the first half of 2022. The company experienced higher volatility in its underwriting results following policyholder dividends and also reports lower levels of total profits. Finally, lower premiums can also make paying dividends to policyholders more challenging, limiting their effectiveness as a retention tool.
The revision of ICR’s long-term outlook to negative from stable reflects pressure on the balance sheet valuation from the aforementioned issues related to the reduction of the company’s premium if further deterioration in operating results would erode the company’s surplus level. The strength of ATI’s balance sheet is supported by its risk-adjusted capitalization, as measured by Best’s capital adequacy ratio (BCAR), which remains at its strongest level despite significant declines in the size of its surplus. The valuations also reflect the company’s limited business profile due to its concentrated geography and limited product offerings.
A negative rating action could occur if there is a material deterioration in risk-adjusted capitalization or surplus, or if the business profile narrows due to the company’s strategic changes.
This press release refers to the credit ratings that are published on the AM Best website. For all rating information relating to the release and relevant disclosures, including details of the agency responsible for issuing each of the individual ratings set out in this release, please see AM Best’s Recent assessment activity Web page. For additional information on the use and limitations of credit score opinions, please see Guide to Best Credit Ratings. For information on the proper use of Best’s credit ratings, Best’s performance ratings, Best’s preliminary credit ratings, and AM Best’s press releases, see A guide to the proper use of Best’s ratings and reviews.
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Source: AM Best