A.M. Best Co. has assigned a financial strength rating of A (Excellent) and an issuer credit rating of “a” to Lone Star Alliance.
Lone Star is an RRG based in the District of Columbia. Its ratings reflect its excellent risk-adjusted capitalisation, A.M. Best’s expectation of a modest operating performance (being a start-up company), and strong reinsurance protection.
The company’s initial capital was provided by its sponsor, Texas Medical Liability Trust. Significant reinsurance support is provided to Lone Star by Texas Medical Insurance Company, which is a subsidiary of the trust, as well as a state regulated property and casualty insurance company. ??
These positive rating factors are partially offset by Lone Star’s risk of adverse losses from being a start-up company, expanding into new states and the concentration risk of primarily writing one line of business in a somewhat limited geographic area.
The ratings further reflect the limited permanency of capital as Lone Star’s entire capital is in the form of a 26-year surplus note. However, this is mitigated by the long maturity of the note and the anticipated very low underwriting leverage represented in Lone Star’s business plan, said the ratings firm.
It added that the company maintains a conservative investment portfolio with minimal returns expected. Therefore, underwriting performance will be the primary driver of surplus growth.??
The outlook is based upon the organisation’s, (which includes both Texas Medical companies) cycle management capabilities and capacity to successfully manage any changes to the tort, regulatory and competitive environments.??
Positive rating actions could result from a long-term continuation of strong underwriting results for the organisation, as well as careful evaluation of the enterprise risk management risks and opportunities with appropriate actions taken to enhance the value of the organisation. ??
The outlook may be revised if adverse underwriting results develop from a loss of underwriting discipline or a change in market conditions and/or negative investment outcomes affect surplus levels.
