AM Best Affirms Credit Ratings of First Acceptance Corporation and Its Subsidiaries

Rhea-AI Summary

AM Best has affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term Issuer Credit Ratings of 'bb' (Fair) for First Acceptance Corporation's subsidiaries. Despite maintaining an adequate balance sheet strength, the company faces challenges due to marginal operating performance and a decline in policyholder surplus by nearly 15% in 2021. Dividends of $16.9 million were distributed, reflecting ongoing operational pressures, including labor shortages and increased claims. The company operates in 13 states, primarily in the non-standard automobile insurance sector, which continues to experience rising costs.

Positive

• Affirmed Financial Strength Rating of B (Fair) and Long-Term Issuer Credit Ratings of 'bb' (Fair).
• Adequate balance sheet strength maintained despite challenges.

Negative

• Policyholder surplus declined nearly 15% at year-end 2021.
• Marginal operating performance and limited business profile.
• Combined ratio increased more than nine points compared to the previous year.

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “bb” (Fair) of the subsidiaries of First Acceptance Corporation (collectively referred to as First Acceptance) (Delaware) [OTCQX: FACO]. (See below for a detailed list of companies). Concurrently, AM Best has affirmed the Long-Term ICR of “b-” (Marginal) of First Acceptance Corporation. The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect First Acceptance’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.

The rating affirmations reflect the group’s overall adequate balance sheet strength despite ongoing operating performance challenges and dividends totaling $16.9 million paid to the holding company in 2021. These dividends were distributed mainly among stockholders, but a portion of the dividends was utilized to provide working capital to the affiliated agency to partially fund smaller agency acquisitions. As seen across the auto industry, the group saw an increase in frequency and severity as a return to more normal driving patterns emerged with miles driven increasing post pandemic. Also, the scarcity of auto parts, labor shortages, inflation and the significant increase in the used auto market all impacted the group’s results in 2021. Due to these events, the group’s policyholder surplus declined nearly 15% at year-end 2021, and its combined ratio escalated more than nine points vs. the prior year. However, the group benefits from a significant amount of fee and other income, which is not calculated in the statutory combined ratio and contributes on average about seven points per year.

The group currently writes in 13 states but is concentrated in the private passenger non-standard automobile line of business, an industry segment that continues to face pressure with increased claim activity and rising costs, as well as ongoing competition.

The FSR of B (Fair) and the Long-Term ICRs of “bb” (Fair) have been affirmed 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/20220223006041/en/

Joseph Burtone

Director

+1 908 439 2200, ext. 5125

joseph.burtone@ambest.com

Richard Attanasio

Senior Director

+1 908 439 2200, ext. 5432

richard.attanasio@ambest.com

Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

Jim Peavy

Director, Communications

+1 908 439 2200, ext. 5644

james.peavy@ambest.com

Source: AM Best

FAQ

What are the current ratings of First Acceptance Corporation (FACO)?

AM Best has affirmed the Financial Strength Rating of B (Fair) and Long-Term Issuer Credit Ratings of 'bb' (Fair) for First Acceptance Corporation's subsidiaries.

How did First Acceptance Corporation (FACO) perform financially in 2021?

In 2021, First Acceptance Corporation faced operating challenges, with a nearly 15% decline in policyholder surplus and an increased combined ratio.

What factors affected First Acceptance Corporation's (FACO) financial results in 2021?

Factors included increased claim activity, labor shortages, inflation, and a significant rise in the used auto market.

What is the outlook for First Acceptance Corporation (FACO)?

The outlook of the Credit Ratings for First Acceptance Corporation is stable.