AM Best


A.M. Best Affirms Credit Ratings of Atlas Financial Holdings, Inc. and Its Subsidiaries


CONTACTS:

Jonathan Harris, CFA, FRM
Senior Financial Analyst
+1 908 439 2200, ext. 5771
jonathan.harris@ambest.com

Jacqalene Lentz, CPA
Director
+1 908 439 2200, ext. 5762
jacqalene.lentz@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - SEPTEMBER 19, 2017 09:05 AM (EDT)
A.M. Best has affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “bb” of American Service Insurance Company, Inc., American Country Insurance Company (both domiciled in Elk Grove Village, IL) and Gateway Insurance Company (St. Louis, MO), collectively referred to as American Service Pool (ASI Pool). The outlook of these Credit Ratings (ratings) is stable. These companies are subsidiaries of Atlas Financial Holdings, Inc. (Atlas) (Cayman Islands) [NASDAQ:AFH], and operate under an intercompany reinsurance pooling agreement. Concurrently, A.M. Best has affirmed the Long-Term ICR of “b-” of Atlas. The outlook of this rating is stable.

At the same time, A.M. Best has affirmed the FSR of B+ (Good) and the Long-Term ICR of “bbb-” of Global Liberty Insurance Company of New York (Global) (Melville, NY), another wholly owned subsidiary of Atlas. The outlook of these ratings is negative.

The affirmations of the ASI Pool members’ ratings reflect the group’s volatile, and at times, weak risk-adjusted capital position, the recent trend in reporting adverse prior year loss reserve development, and the group’s below average investment yields and returns on its investment portfolio. These negative rating factors are offset partially by the steadily improving underwriting and operating performance over the past five years, and management’s extensive experience and expertise in its niche market serving the public’s “for hire” auto market.

The pool’s volatile, and at times, weak risk-adjusted capital position, was the result of achieving significant premium growth over the past several years through an acquisition by its parent, Atlas. However, the pool’s capital position was improved significantly in 2015, as a result of the issuance of three surplus notes from the pool to its parent, totaling $15.5 million. The group reported prior year adverse loss reserve development in 2015 and 2016, which added 1.8 and 19.5 points to its combined ratios for those years. The group reported a significant level of adverse loss reserve development in 2016, totaling $26 million. The majority of the $26 million of adverse development recorded in 2016 was due to management’s review of outstanding unpaid personal injury protection claims, particularly in Michigan. Reserve strengthening was necessary for higher-than-expected losses related primarily to significantly increased severity in light commercial auto. Management is addressing its exposure in Michigan by continuing with maximum rate increases, further tightening of underwriting requirements that are expected to reduce in-force policy count to less than 1% of total policies in force by the end of 2017. Also of concern is the pool’s investment portfolio, which is weighted heavily toward bonds, leaving investment income growth highly contingent upon currently low interest rate levels. This greatly increases the pool’s reliance on underwriting income to fuel surplus growth.

The improved operating results, beginning in 2012, demonstrate Atlas’ strategic focus on its historically profitable lines of business, while running off non-core lines and books of business produced by managing and general agents. Favorable underwriting performance drove the improved results with the cancellation of unprofitable business, base rate increases, fraud mitigation, the absence of significant reserve strengthening and greater geographic diversification. The expense ratio reduction was due primarily to the efficiencies gained through premium growth that occurred with the recapture of previously lost business.

Future positive rating action may occur if the pool continues to show improvement in its operating performance or shows additional improvement in its risk-adjusted capitalization levels. However, negative rating action could occur if the pool experiences deterioration in underwriting and operating performance, develops a trend of reporting material adverse loss reserve development, or experiences deterioration in risk-adjusted capitalization to a level that no longer supports the current ratings.

The ratings of Global reflect its expertise within the New York City metropolitan area’s for-hire-livery vehicle market and improved capital position as a result of a $3.5 million capital infusion made by its new parent, Atlas. These positive rating factors are offset by Global’s volatile underwriting and operating results in recent years, driven mainly by unfavorable prior year loss reserve development related primarily to assigned risk and run-off business, which resulted in declines in surplus in 2012 and 2013. Additionally, Global has reported historically low risk-adjusted capitalization, driven by substantial growth in net premiums written as a result of the cancellation of quota share reinsurance in prior years. Although Atlas’ management is committed to initiating appropriate actions in order to improve performance and reduce volatility, the negative outlook reflects A.M. Best’s concern regarding the adequacy of Global’s loss reserves and recent volatility in underwriting and operating performance.

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. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

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