|[November 19, 2012]
A.M. Best Affirms Ratings of Virginia Surety Company, Inc.
OLDWICK, N.J. --(Business Wire)--
A.M. Best Co. has affirmed the financial strength rating of A-
(Excellent) and issuer credit rating of "a-" of Virginia
Surety Company, Inc. (Virginia Surety) (Chicago, IL). The outlook
for both ratings is positive.
The rating affirmations for Virginia Surety reflect its strong
capitalization, profitable operating results and specialty niche
underwriting expertise, as well as its leadership position in the
extended warranty market. Virginia Surety also benefits from its
extensive database, broad administrative capabilities and ability to
integrate its products and services across its broad client distribution
channel. The ratings also take into consideration the unlimited
guarantee and indemnification provided by National Indemnity Company
for the run-off of all non-warranty business written prior to the 2006
acquisition of The Warranty Group, Inc. and its subsidiary, Virginia
Surety, by the current owner, Onex Corporation [TSX: OCX].
These positive rating factors are offset by Virginia Surety's level of
dividends over the last few years, its long-term ownership uncertainty
(given its current ownership status), its high gross underwriting
leverage and the credit risk associated with non-rated unauthorized
captive reinsurers. However, recoverable risk is somewhat mitigated
throuh the use of collateral via letters of credit and funds held on
recoverable balances. Despite these attenuating factors, the positive
outlook is based upon the expectation for continued profitability and
the maintenance of supportive capitalization.
Virginia Surety and its affiliated companies are the largest
underwriters of consumer extended warranties worldwide. Underwriting
activities principally include coverage for extended warranty programs
on automobiles, household appliances, consumer electronics, credit card
enhancement programs and nonstructural home warranty.
The positive outlook reflects the likelihood that Virginia Surety's
ratings will be upgraded over the next 12 to 36 months pending sustained
profitability in its core businesses, continued capital growth, a
supportive level of capital and ability to attract and retain new and
existing distribution partnerships. The outlook also is contingent on
The Warranty Group, Inc. maintaining a conservative financial leverage
and liquidity profile, which would afford Virginia Surety further
financial flexibility, if necessary.
At the same time, the ratings/outlook of the company could be downgraded
if capitalization and/or operating performance falls markedly short of
A.M. Best's expectations, including any significant deterioration in
loss trends, any sudden and unforeseen disruption in its distribution
channels and any material changes in holding company financial leverage,
liquidity and GAAP interest coverage ratios.
The methodology used in determining these ratings is Best's Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best's rating process and contains the different rating criteria
employed in the rating process. Best's Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more
information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS
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