A.M. Best has affirmed the financial strength rating of A-
(Excellent) and the issuer crediting rating “a-” of Standard Casualty
Company (Standard Casualty) (New Braunfels, TX). The outlook for
both ratings is stable. Standard Casualty is a subsidiary of Cavco
Industries Inc. (Cavco) (Delaware) (NASDAQ:CVCO), a manufacturer of
factory-built homes.
The affirmation of the ratings reflects Standard Casualty’s adequate
risk-adjusted capitalization, generally favorable operating results and
its excellent local market knowledge. During the latest five-year
period, Standard Casualty reported positive pre-tax operating income
driven by favorable net investment income and to a lesser extent,
underwriting income generated in three of those five years. Standard
Casualty retuned to underwriting profit in 2013, and these improved
underwriting results have continued through the third quarter of 2014.
In addition, Standard Casualty maintains a generally conservative
investment portfolio and favorable balance sheet liquidity. Finally, the
company benefits from the financial flexibility of Cavco, which made a
capital infusion to Standard Casualty in 2012 to assist in its
aggressive growth initiative.
These positive rating factors are partially offset by Standard
Casualty’s operating losses in two of the past five years, driven by
frequent and severe weather-related events, along with above average
fire losses. This was particularly evidenced in 2011, due to sizable
underwriting losses. As a predominantly Texas writer, along with recent
aggressive growth in Arizona and New Mexico, Standard Casualty's results
are exposed to frequent and severe weather-related events, as well as
judicial, regulatory and economic concerns. However, these risks are
partially mitigated as Standard Casualty historically has adhered to
strict underwriting guidelines and a conservative operating philosophy.
Pressure may be put on Standard Casualty’s ratings and outlook if its
operating performance deteriorates or there is a loss of surplus, which
may lead to weaker risk-adjusted capitalization. Positive rating actions
are contingent upon Standard Casualty’s successful execution of its
growth plan over the years and its ability to consistently produce
favorable operating results and organically grow surplus, while
maintaining supportive capitalization and adequate leverage measures.
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Best’s Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
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Catastrophe Analysis in A.M. Best Ratings
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Evaluating Non-Insurance Ultimate Parents
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Insurance Holding Company and Debt Ratings
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Risk Management and the Rating Process for Insurance Companies
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Understanding BCAR for Property/Casualty Insurers
A.M. Best Company is the world's oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.
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