The revised outlook is based on the company’s declining operating results over the past two years, driven by some deterioration in underwriting results, as well as a significant decline in investment income over the past two years. This decline is partially due to the company’s decision to realize gains in 2013. As such, operating returns in those years no longer exceed composite norms. When the company’s positive outlook was assigned in 2012, operating results had consistently outperformed the composite over a number of years, and such outperformance was expected to continue. Although overall results do remain favorable, there is some uncertainty as to the trajectory of future earnings.
The ratings reflect Lancer’s solid market presence in the specialty transportation market, its strong risk-adjusted capitalization and overall favorable return measures over a five and 10-year period. These positive rating factors are derived from the company’s strong market profile as one of the largest specialty passenger transportation insurers of motor coaches, school buses, transit buses, limousines and vanpools in
Partially offsetting these positive rating factors are Lancer's history of large stockholder dividends and the increase in the severity of losses in 2013. Furthermore, severity losses increased in 2013, which led to underwriting losses for the entire year. Soft market conditions have led to rising loss ratios over the past three years. Nonetheless, the company has a history of after-tax operating results that have led to strong pre-dividend earnings.
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.
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