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), based in Burlington, Vermont.
The outlook of these credit ratings remains stable.
A.M. Best noted that the ratings reflect NGIC’s balance sheet strength, which they categorised as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
The ratings support NGIC’s role as a captive insurance company of Waste Management (WM), a provider of comprehensive waste management environmental services in North America.
A.M. Best explained that 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. The active risk management has benefited capitalisation through loss prevention to generate consistently positive earnings.
“Partially offsetting these factors 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” the rating firm outlined.
“This factor is mitigated partially by WM’s balance sheet size and operating cash flow, which could fulfil the loan obligation readily if required. Capital levels also are monitored by the Vermont Department of Financial Regulation, which requires the company to maintain a certain aggregate exposure to capital ratio,” A.M. Best added.
The ratings also noted that NGIC’s expense ratio compares unfavourably with the surplus lines composite due to the nature of the financial assurance line of business and expenses focused on risk mitigation.
However, A.M. Best suggested the company has been able to reduce underwriting expenses significantly over the past five years to further benefit operating and net income.
Due to the nature of the relationship between NGIC and WM, changes in WM’s credit risk can have an impact on NGIC’s ratings, as it is dependent on WM’s ability to support its credit risk profile, competitiveness and risk management.
“The captive continues to be an integral component of WM’s risk management platform, according to A.M. Best.
A.M. Best’s view of third-party credit ratings and market-based credit risk measures of WM indicates stability, resulting in NGIC’s outlooks remaining stable. Additionally, it was noted that NGIC’s balance sheet remains very strong and its operations remain strong and profitable as an essential business in the COVID-19 environment, while meeting waste management needs of its customers.
