AM Best has affirmed the financial strength rating of ‘A-’ (Excellent), as well as the long-term issuer credit rating of ‘a-’ (Excellent) of Texas-based Triple Crown Assurance (TCA), with the outlook of these credit ratings assessed as ‘stable’. TCA is a captive wholly owned by Southwest Airlines (SWA), a passenger airline that provides transportation within both the US and near-international markets. The agency says the ratings are indicative of TCA’s very strong level of balance sheet strength, in conjunction with its adequate operating performance, limited business profile, and appropriate enterprise risk management. Moreover, Best’s capital adequacy ratio measures the captive’s risk-adjusted capitalisation as being at the strongest level, which they say underpins TCA’s balance sheet strength, as well as its adequate liquidity measures, consecutive years of surplus growth, and favourable loss reserve development, in recent years. However, Best highlights several offsetting factors, including the captive’s elevated exposure to credit risk, its higher-than-average underwriting leverage metrics, in addition to significant annual dividends, which commenced in 2024. Despite an exit from TCA’s contractual reinsurance arrangement with several creditworthy captives in late 2024, the captive is obliged to have quarterly transactions on the remaining loss reserves until it is settled, which Best says relates to its elevated credit risk. In addition to this, Best describes the significant portion of assets TCA has loaned to its parent company, SWA, as being noteworthy, although the agency highlights the limited risk repayment of the loan due to the affiliation and aligned interests between the two enterprises. The agency cites favourable underwriting results as the primary force in TCA’s operating performance profitability, and, to a lesser extent, investment income, with the captive also benefitting from low acquisition costs and administrative expenses.
