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A.M. Best Upgrades Ratings of The American Road Insurance Company CONTACTS:
FOR IMMEDIATE RELEASE OLDWICK, N.J., July 14, 2010—A.M. Best Co. has upgraded the financial strength rating (FSR) to B++ (Good) from B+ (Good) and issuer credit rating (ICR) to “bbb” from “bbb-” of The American Road Insurance Company (TARIC) (Dearborn, MI). The outlook for the FSR has been revised to stable from negative, while the outlook for the ICR has been revised to positive from negative. TARIC’s capitalization and operating performance has been and continues to be robust. However, its ratings are the result of its immediate parent, Ford Motor Credit Company LLC (Ford Credit) and ultimate parent, Ford Motor Company’s (Ford) [NYSE: F] operating challenges, which act as a constraint on TARIC’s rating profile. Nevertheless, TARIC’s rating upgrades reflect Ford’s successful implementation of its restructured business plan. Ford’s four consecutive quarters of positive pre-tax results act as evidence to support the company’s progress toward returning to lower default risk, and it is expected to achieve solid pre-tax profit in 2010. The ratings also reflect TARIC’s excellent capitalization level, history of positive operating performance, conservative reserve practices and effective management of exposures. Over the past five years, the company’s after-tax five-year return on surplus has averaged 16% and has consistently logged operation income in each year. Capital and surplus levels have declined 33.3% over the same period. The decline is primarily attributed to an extraordinary dividend of $100 million and $80 million to Ford Credit in 2008 and 2009, respectively, reflective of TARIC’s established dividend policy. However, TARIC’s surplus growth levels have been through the accumulation of net profits, and the company continues to maintain an excellent level of capitalization. Partially offsetting these positive rating factors are A.M. Best’s concerns regarding the operation and profitability of Ford Credit and Ford and the potential impact of these entities on the operations of TARIC. An additional offsetting rating factor is the moderate amount of credit risk assumed by TARIC with placement of reinsurance to an offshore affiliate. Although TARIC’s ceded leverage is well above that of its peer companies, nearly all of its ceded reserves are backed by a trust account with TARIC named as the sole beneficiary. A.M. Best remains the leading rating agency of captive insurers rating a wide variety of more than 200 captives in the United States and throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative insurance market, please visit www.ambest.com/captive. The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com. ### |
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