A.M. Best has affirmed the financial strength rating of “A (Excellent)” and the issuer credit rating of “a” of The American Road Insurance Company (TARIC). The outlook for both ratings is stable.
TARIC is a single parent or pure captive insurer wholly owned by Ford Motor Credit, which in turn is a wholly owned by Ford. It provides a variety of coverages to its ultimate parent, Ford Motor Company, and its subsidiaries in the US and Canada.
According to the agency, the ratings reflect TARIC’s “excellent” capitalisation level, history of positive operating performance, “conservative” reserving practices and effective exposure management.
Over the past five years, the company’s after-tax five-year return on surplus has averaged 10 percent, primarily driven by underwriting.
TARIC has consistently logged operating income in each of those years. Capital and surplus levels have declined by 7 percent over the same period; though this decline is primarily attributed to extraordinary dividends of $154 million to its parent over a five-year period that began in 2010.
This is reflective of TARIC’s established dividend policy, even though TARIC’s surplus growth levels have been through the accumulation of net profits.
The company continues to maintain what A.M Best has called an “excellent” level of capitalisation and “strong” synergies with its ultimate parent, Ford.
A.M. Best commented: “Partially offsetting these positive factors is TARIC’s narrow business focus and dependency on Ford’s business.”
“Furthermore, its business underwriting results in automotive floorplan is subject to volatility due to weather-related events impacting vehicle inventories, particularly hail and hurricane/catastrophe-related events.”
Somewhat offsetting these positive rating factors are A.M. Best’s continuing concerns regarding the operation and profitability of Ford Credit and Ford, as well as the potential impact of these entities on TARIC’s operations.
Following the 2008 financial crisis, the ratings of TARIC were hampered by the operating challenges of Ford Credit and Ford.
Although this concern has been greatly alleviated in recent years due to Ford’s successful implementation of its restructured business plan, continued strong competitive product portfolio and credit metrics.
A.M Best has stated that Ford’s 2014 financial results and enhanced market share are further evidence of its progress toward returning to lower default risk.
TARIC’s ratings are well-positioned at the current level, and as a result, upward movement is unlikely over the medium term, according to the agency.
