The positive outlook for the ICR reflects AMIC's more favorable operating and investment results in recent years that are in line with historical norms, its improved capitalization and the revised structure of its fixed income portfolio. Despite declines in net investment income, operating earnings have improved in recent years, returning to more profitable underwriting results. Improved underwriting results have followed a reduction in storm losses and favorable reserve development trends. The combination of improved operating results and capital gains (in contrast to losses in prior years) has led to both favorable overall return measures and surplus growth. Ultimately, AMICís risk-adjusted capitalization has improved over a three-year period.
The ratings also reflect the company's tax-exempt status and the benefits derived from operating within a relatively favorable legal environment as
AMIC's investment portfolio has historically contained a significant concentration of mortgage and asset-backed securities (ABS), including collateralized debt obligations (CDO). With the economic crisis that began in 2008, the portfolio incurred large capital losses as the company sold its ABS and CDO holdings. These actions led to a drop in surplus and negative return measures. However, AMIC's fixed income portfolio has been largely deleveraged and risk-adjusted capitalization has significantly improved. Moreover, no material future losses from these holdings are anticipated. An additional offsetting rating factor is AMICís increased equity leverage.
Positive rating actions could occur if AMICís operating results remain favorable and risk-adjusted capitalization continues to support higher rating levels. Conversely, negative rating actions could occur if operating losses return to the extent that they negatively impact the companyís capitalization.
The methodology used in determining these ratings is Bestís Credit Rating Methodology, which provides a comprehensive explanation of A.M. Bestís rating process and contains the different rating criteria employed in the rating process. Bestís Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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