A.M. Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” of National Guaranty Insurance Company of Vermont (NGIC).
The outlook of the Vermont-based captive’s credit ratings remains stable.
The ratings support NGIC’s role as the captive insurance company of Waste Management (WM), a leading company in the waste management sector.
According to A.M. Best, the captive continues to be an integral component of WM’s risk management platform.
Additionally, they’re reflective of NGIC’s “very strong” balance sheet strength, its strong operating performance, limited business profile, and appropriate enterprise risk management.
The captive benefits from the parental support and robust risk management strategies afforded to it from WM as important factors of the company’s overall financial assurance programme.
Offsetting these factors partially is the large percentage of policyholder surplus loaned back to WM in the form of a 24-hour demand note that has caused liquidity measures to underperform its peers.
This factor is mitigated by WM’s balance sheet size and operating cash flow, which could readily fulfill the loan obligation if required.
The Vermont Department of Financial Regulation monitors capital levels and requires the company to maintain a certain aggregate exposure to capital ratio.
The captive’s expense ratio compares unfavourably with the surplus lines composite due to the nature of the financial assurance lines of business and expenses focused on mitigation.
However, the company has been able to reduce underwriting expenses significantly over the past five years to further benefit operating and net income.
The nature of their relationship means that changes in WM’s credit risk can have an impact on NGIC’s ratings, as the captive is dependent on WM’s ability to support its credit risk profile, competitiveness and risk management.
The ratings agency’s view of third-party credit ratings and market-based credit risk measures of WM indicates stability, which has resulted in NGIC’s outlooks remaining stable.
A material improvement in NGIC’s operating performance while maintaining the appropriate level of risk-adjusted capitalisation could result in positive rating action.
Negative rating impact could occur if the company’s balance sheet strength deteriorates materially to levels that do not support its risks, or if the parent experiences financial distress and deterioration to its credit profile.
