A.M. Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) of the National Guaranty Insurance Company of Vermont (NGIC). The outlook of these credit ratings is stable. The ratings reflect NGIC’s very strong balance sheet strength, as well as its strong operating performance, limited business profile and appropriate enterprise risk management, A.M. Best explains. The ratings support NGIC’s role as a captive insurance company of Waste Management (WM), one of the leading providers of comprehensive waste management environmental services in North America. A.M. Best explains that the captive benefits from the parental support and robust risk management strategies afforded to it from WM as important factors of the NGIC’s overall financial assurance programme. “Active risk management has benefited capitalisation through loss prevention to generate consistently positive earnings,” A.M. Best notes. Partially offsetting these factors, A.M. Best says, is the large percentage of policyholder surplus loaned back to WM in the form of a 24-hour demand note, which 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. 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. NGIC’s expense ratio compares unfavourably with the surplus lines composite over a five and 10-year period, which A.M. Best says is due to the nature of the financial assurance line of business and expenses focused on risk mitigation. However, the company has reduced 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, A.M. Best highlights that 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. A.M. Best’s says its view of third-party credit ratings and market-based credit risk measures of WM indicates stability, resulting in NGIC’s stable outlooks. Negative rating action could occur if the company’s balance sheet strength deteriorates materially to levels that do not support its risks. It could also see negative changes if WM experiences financial distress and deterioration to its credit profile.
