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

Rhea-AI Summary

AM Best has upgraded the Financial Strength Rating (FSR) of First Acceptance Corporation's subsidiaries to B (Fair) from B- (Fair) and the Long-Term Issuer Credit Ratings (ICR) to 'bb' from 'bb-'. Concurrently, the Long-Term ICR of First Acceptance Corporation itself has been upgraded to 'b-' from 'ccc+'. The outlook for these ratings is stable. This reflects the group's adequate balance sheet strength and marginal operating performance, alongside improved policyholder surplus and reduced financial leverage.

Positive

• Upgraded Financial Strength Rating (FSR) to B (Fair) from B- (Fair).
• Long-Term Issuer Credit Ratings (ICR) improved from 'bb-' to 'bb'.
• Positive net income and pre-tax operating income over the past three years, enhancing policyholder surplus.
• Declined financial leverage at the holding company.

Negative

• Marginal operating performance and limited business profile.
• Surplus growth was impacted in 2019 due to extraordinary capital distribution.

AM Best has upgraded the Financial Strength Rating (FSR) to B (Fair) from B- (Fair) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “bb” from “bb-” 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 upgraded the Long-Term ICR to “b-” from “ccc+” 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 categorizes as adequate, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.

The rating upgrades reflect an upward revision in the group’s balance sheet strength assessment. This movement was a result of the group’s favorable pre-tax operating income and positive net income over the past three years, which resulted in policyholder surplus growth. While surplus growth was tempered in 2019 due to the payment of an extraordinary capital distribution to the parent for the repayment of outstanding debt, risk-adjusted capitalization has improved considerably. Additionally, as a result of the capital distribution, financial leverage at the holding company has declined. Strategic reductions in premium volume during the same time frame have resulted in lower underwriting leverage ratios.

The FSR has been upgraded to B (Fair) from B- (Fair) and the Long-Term ICRs to “bb” from “bb-” of 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 media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

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

Copyright © 2021 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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FAQ

What recent ratings did AM Best assign to First Acceptance Corporation (FACO)?

AM Best upgraded the Financial Strength Rating (FSR) to B (Fair) and the Long-Term Issuer Credit Ratings (ICR) to 'bb'.

What does the stable outlook for FACO's ratings indicate?

The stable outlook suggests that AM Best expects the ratings to remain unchanged in the near future.

How has First Acceptance Corporation improved its financial metrics?

First Acceptance has shown favorable pre-tax operating income and positive net income over the past three years, resulting in policyholder surplus growth.

What challenges does First Acceptance Corporation face according to AM Best's report?

First Acceptance has marginal operating performance and a limited business profile, which are concerns for its overall ratings.