KBRA Affirms Ratings for American Coastal Insurance Corp. and American Coastal Insurance Company; Removes Watch Developing Status and Downgrades Rating for Interboro Insurance Company
11 Oct 2024 | New York
KBRA affirms the insurance financial strength rating (IFSR) of A- for American Coastal Insurance Company (AmCoastal). KBRA also affirms the issuer rating of BB+ for American Coastal Insurance Corporation (ACIC) and the debt Rating of BB+ on ACIC's $150 million 10-year 6.25% senior unsecured notes due 2027. The Outlook for these ratings is Stable. Additionally, KBRA removes from Watch Developing Status and downgrades the IFSR for Interboro Insurance Company (IIC) from A- to BBB+ with a Developing Outlook.
The downgrade of IIC reflects the continuation of the negative trend in underwriting results in 2023 and the first half of 2024, further deterioration in policyholder surplus which has decreased 41% over the last five years and CAL RBC ratios which have weakened from 935% in 2020 to 477% in 2023. The Developing Outlook for IIC reflects the continued uncertainty regarding the timing of closing on the sale of the company to Forza Insurance Holdings, LLC (Forza) and the future strategic and capital plans for the company post-acquisition.
The Stable Outlooks for ACIC and AmCoastal reflect KBRA’s expectation that AmCoastal will continue to maintain adequate risk-based capitalization while executing its business plan, robust reinsurance programs with strong counterparties and, a high credit quality investment portfolio.
The rating of AmCoastal reflects its low commercial lines loss ratios, conservative investment portfolio, sound catastrophe program, favorable market position, and experienced management team. AmCoastal has been profitable every year since 2007 inclusive of major hurricane losses except for 2019-2021 when it was part of a pooling arrangement with ACIC’s former personal lines subsidiaries that were divested in the first quarter of 2023. AmCoastal is the leading provider of commercial residential property insurance in Florida. These strengths are balanced by the companies’ exposure to event risk, heavy reliance on reinsurance and high, but improving financial leverage. Both AmCoastal and IIC are single state operators in states with high catastrophe exposure. The availability and affordability of adequate reinsurance is critical to the companies being able to manage their exposures within their capital resources.
Factors that could positively impact the ratings include sustained operating profitability, continued improvement in financial leverage, controlled geographic expansion into other states outside of Florida, a steady trend in organic surplus growth, or a favorable change in risk profile.
Factors that could negatively impact the ratings include deterioration in risk adjusted capitalization and/or underwriting leverage, inability to obtain reinsurance on acceptable terms and pricing, causing an increase in loss exposure, a reduction in the company’s ability to underwrite policies or a drag on earnings, a material decline in the credit quality of the reinsurance panel and/or inability to collect on reinsurance causing a material adverse effect on operating results and overall financial condition, an unfavorable change in risk profile, or a sustained deterioration in financial leverage.
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