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FOR IMMEDIATE RELEASE
OLDWICK - NOVEMBER 23, 2016 11:20 AM (EST)
A.M. 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” from “bb+” for the subsidiaries of First Acceptance Corporation (collectively referred to as First Acceptance) (Delaware) [NYSE: FAC]. Concurrently, A.M. Best has downgraded the Long-Term ICR to “cc” from “b” of First Acceptance Corporation. The outlooks of these Credit Ratings (ratings) have been revised to negative from stable. (See below for a full listing of companies and ratings).
The downgrade of the Long-Term ICR reflects a material decline in First Acceptance’s risk-adjusted capitalization due to adverse loss reserve development recognized in the second quarter of 2016. First Acceptance has concentration in the private passenger non-standard automobile business, an industry segment that is considered under pressure. Due to improvements in the economy, the automobile segment as a whole has experienced increased claim activity in the past few years, contributing to First Acceptance’s recent underwriting losses. The significant decrease in the company’s surplus has resulted in elevated net underwriting leverage.
Partially offsetting these negative rating factors is First Acceptance’s steady fee income, which offsets underwriting expenses and is a significant component of the product pricing that has contributed to surplus growth in prior years. Additionally, the purchase of the Titan Agencies by First Acceptance, which closed on July 1, 2015, has improved its financial flexibility by alleviating some of the pressure on First Acceptance’s subsidiaries to provide dividend capital to the holding company. It is A.M. Best’s expectation that Titan Agencies will eventually help expand First Acceptance’s geographic footprint.
The FSR has been downgraded to C++ (Marginal) from B (Fair) and the Long-Term ICRs downgraded to “b” from “bb+” for the following pooled subsidiaries of First Acceptance Corporation. The outlooks of these ratings have been revised to negative from stable.
This press release relates to Credit Ratings that have been published on A.M. 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 A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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