ADDING and REPLACING AM Best Downgrades Credit Ratings of First Acceptance Corporation and Its Subsidiaries

Rhea-AI Summary

AM Best has downgraded the Financial Strength Rating (FSR) of First Acceptance Corporation (FACO) and its subsidiaries to C++ (Marginal) from B (Fair). The Long-Term Issuer Credit Ratings (ICR) were also downgraded from bb (Fair) to b+ (Marginal). The outlook for the Long-Term ICR is now negative from stable, while the FSR outlook remains stable. This downgrade follows a significant erosion in First Acceptance’s balance sheet strength, attributed to increased physical damage loss costs and inflationary pressures affecting its operating performance.

Positive

• The Financial Strength Rating (FSR) outlook is stable, indicating some resilience despite downgrades.
• Management continues to enhance the Enterprise Risk Management (ERM) framework.

Negative

• Financial Strength Rating downgraded to C++ (Marginal) from B (Fair).
• Long-Term Issuer Credit Ratings downgraded to b+ (Marginal) from bb (Fair).
• Negative outlook on Long-Term ICR reflects erosion in overall balance sheet strength.
• Weak balance sheet strength due to surplus erosion as of Q3 2022.
• Significant decline in capital and risk-adjusted capitalization due to rising loss costs and market pressures.

OLDWICK, N.J.--(BUSINESS WIRE)-- Add in first sentence of release dated Dec. 22, 2022, exchange and ticker symbol for First Acceptance Corporation (Delaware): [OTCQX: FACO]. First sentence should read: AM Best has downgraded the Financial Strength Rating (FSR) to C++ (Marginal) from B (Fair) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “b+” (Marginal) from “bb” (Fair) of the subsidiaries of First Acceptance Corporation (Delaware) [OTCQX: FACO], collectively referred to as First Acceptance Group.

The updated release reads:

AM BEST DOWNGRADES CREDIT RATINGS OF FIRST ACCEPTANCE CORPORATION AND ITS SUBSIDIARIES

AM Best has downgraded the Financial Strength Rating (FSR) to C++ (Marginal) from B (Fair) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “b+” (Marginal) from “bb” (Fair) of the subsidiaries of First Acceptance Corporation (Delaware) [OTCQX: FACO], collectively referred to as First Acceptance Group. The outlook of the Long-Term ICR has been revised to negative from stable while the outlook of the FSR is stable. (See below for a detailed list of companies). Concurrently, AM Best has downgraded the Long-Term ICR to “ccc-” (Weak) from “b-” (Marginal) of First Acceptance Corporation. The outlook of this rating has been revised to negative from stable.

The 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.

The rating downgrades reflect a reduction in First Acceptance’s balance sheet strength assessment to weak from adequate. This rating action follows surplus erosion as of third-quarter 2022 and corresponding significant deterioration in overall risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). The group’s weakened capital position mostly is attributed to increased severity trends on physical damage losses for the fourth quarter of 2021 and continuing in 2022. The negative outlook on the Long-Term ICRs reflect erosion in overall balance sheet strength in 2022, marked by a material decline in capital, and subsequently, risk-adjusted capitalization.

First Acceptance’s operating performance remains marginal due to the rise in the group’s physical damage loss costs driven by inflationary pressures, supply chain and labor market challenges. The limited business profile reflects First Acceptance’s product and geographic concentration, which is largely focused on nonstandard auto business and continues to face rising loss costs driven by inflationary pressures, growing market competition and challenges in maintaining rate adequacy. Although still evolving, management continues to enhance the ERM framework and integrate a more formalized structure into its process.

The FSR has been downgraded to C++ (Marginal) from B (Fair) and the Long-Term ICRs have been downgraded to “b+” (Marginal) from “bb” (Fair), with the outlook of the Long-Term ICRs revised to negative from stable and the outlook of the FSR 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.

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

Copyright © 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221222005439/en/

Maurice Thomas

Senior Financial Analyst

+1 908 439 2200, ext. 5794

maurice.thomas@ambest.com

Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

Joseph A. Burtone

Director

+1 908 439 2200, ext. 5125

joseph.burtone@ambest.com

Al Slavin

Senior Public Relations Specialist

+1 908 439 2200, ext. 5098

al.slavin@ambest.com

Source: AM Best

FAQ

What does AM Best's downgrade of First Acceptance Corporation's ratings signify?

The downgrade indicates a decline in financial strength and operating performance, posing risks to investors.

What is the current Financial Strength Rating of FACO?

As of December 22, 2022, the Financial Strength Rating is C++ (Marginal).

What are the reasons behind the downgrade of FACO's credit ratings?

The downgrade is due to reduced balance sheet strength, surplus erosion, and increased physical damage loss costs.

What is the outlook for First Acceptance Corporation's credit ratings?

The outlook for the Long-Term Issuer Credit Rating is negative, while the FSR outlook is stable.