OLDWICK, N.J.–(BUSINESS WIRE)–#insurance—AM Best has revised the outlooks to stable from negative for the Long-Term Issuer Credit Ratings (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of C++ (Marginal) and the Long-Term ICRs of “b+” (Marginal) of the subsidiaries of First Acceptance Corporation (Delaware) [OTCQX: FACO], collectively referred to as First Acceptance Group (First Acceptance). The outlook for the FSR is stable. Concurrently, AM Best has revised the outlook to stable from negative and affirmed the Long-Term ICR of “ccc-” (Weak) of First Acceptance Corporation. (See below for a detailed list of subsidiaries.)
The Credit Ratings (ratings) reflect First Acceptance’s balance sheet strength, which AM Best assesses as weak, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).
The revision of the Long-Term ICRs outlooks to stable from negative reflects strengthening of the balance sheet metrics and overall risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR) that improved to strong from weak as of the prior year. Surplus growth in 2024, benefited from robust net income enhanced by an additional capital contribution related to proceeds received from the sale of the affiliated retail agency operations in 2023. The material increase in First Acceptance’s reported net income, which benefited from considerable growth in both net investment and other fee income, was partially offset by continued unprofitable underwriting results owing to increased severity trends in the bodily injury and physical damage lines of business leading to unfavorable reserve trends. These trends have been partially mitigated by the loss of the ratio-based contingent commission adjustments in the group’s second-largest independent agent in 2024. Risk-adjusted capitalization further benefited from a recent quota share treaty on the group’s second-largest independent agent, effective July 1, 2024, implemented to reduce underwriting leverage and manage risk. Despite an improved balance sheet, the organization’s position remains highly sensitive to premium growth and reserve adequacy given its elevated leverage position. Management of growth and corresponding risk-adjusted capitalization will continue to be monitored for sustained improvement in the near term.
First Acceptance’s marginal operating performance assessment is driven by persistent underwriting losses, partially offset by net investment income, other income and realized gains in recent years. The company’s business profile is assessed as limited as operations are focused on non-standard automobile business, which has a history of being volatile and competitive. Geographic risk concentration reflects nearly 64% of premium derived from Georgia, Florida and South Carolina. AM Best assesses First Acceptance’s ERM as marginal given the framework that continues to evolve. While enhancements have taken place to integrate a more formalized structure, risk management capabilities are not fully aligned with the organization’s profile.
The FSR of C++ (Marginal) and the Long-Term ICRs of “b+” (Marginal) have been affirmed, with the Long-Term ICRs outlooks revised to stable from negative and the FSR outlook maintained at stable, for the following pooled subsidiaries of First Acceptance Corporation:
- First Acceptance Insurance Company, Inc.
- First Acceptance Insurance Company of Georgia, Inc.
- First Acceptance Insurance Company of Tennessee, Inc.
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 use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
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