News Column

A.M. Best Revises Outlook of R.V.I. Guaranty Co., Ltd. and R.V.I. America Insurance Company

June 26, 2014



OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Besthas revised the outlook to positive from stable and affirmed the financial strength rating of B++ (Good) and the issuer credit ratings of “bbb+” of R.V.I. Guaranty Co., Ltd. (RVI Guaranty) (Bermuda) and its Connecticut-domiciled subsidiary, R.V.I. America Insurance Company(RVI America) (collectively known as RVI).

RVI is one of the largest insurance companies that specialize in underwriting and marketing of residual value insurance for clients engaged in asset-based financing. Coverage is purchased by participants in asset-based finance transactions to obtain third-party financial support either due to regulatory and accounting issues or for protection against the unexpected decline in the market value of an asset.

The ratings reflect RVI’s operating and underwriting results, conservative investment portfolio and improvement in the market value of its insured assets, business profile and risk-adjusted capital. After a 2008 downturn in the economy that resulted in a significant decline in (1) the market values of its insured assets, (2) operating results and (3) demand for RVI’s primary insurance product, residual value insurance, the company took actions to stabilize and improve operating results and expand its narrow focused/concentrated client base. These specific actions included: the de-risking of its insured portfolio through the commutation of (1) passenger vehicle policies and/or pools of policies of higher risk assets and (2) RVI’s entire $4.2 billion financial guaranty reinsurance portfolio. The development of additional passenger vehicle programs that will expand the use of residual value insurance beyond vehicle leases into vehicle financings; the growth of its fee-based services, which not only directly contributes to RVI’s profitability but also provides opportunities for generating organic growth of its insurance product and the formation of NxGen 360, LLC to launch and distribute certain insurance products to automobile dealers and wholesalers, were also included.

The outlook reflects RVI’s operating results, risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio and its continued leading market position in providing residual value insurance. However, the ratings may be subject to change (i.e., downgraded or upgraded) and the outlook revised, again, should substantial changes occur in the following areas: financial market and/or economic conditions; demand for RVI’s residual value insurance product; risk-adjusted capital position; or operating performance.

These positive rating factors are tempered by RVI’s narrowed business profile as its primary business segments—passenger vehicle, commercial equipment and real estate—are highly dependent upon the performance and cyclicality of the asset-based financing/lending industry where RVI now predominately provides lower levels of risk coverage and catastrophe risk transfer. A less robust asset-based lending environment may constrain premium growth in the near future. In addition, there is an element of uncertainty that may potentially impact RVI’s operations and financial condition as a result of: proposed changes to lease accounting standards. Even though the impact to RVI appears to be minimal based upon the latest tentative broad decisions by both the Financial Accounting Standards Board and the International Accounting Standards Board, there still exists an element of uncertainty because the decisions become final only after a formal written ballot to issue a financial standards update occurs. Additionally, the tax court resolution of an Internal Revenue Service issue regarding its public release (December 9, 2011) of a technical advice memorandum (2011 TAM), which concluded that a contract labeled “residual value insurance” that “insures” against market decline is not a contract of insurance for federal income tax purposes, still needs to be resolved.

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.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2014 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.





A.M. Best

Yuhmei Chen,908-439-2200, ext. 5236

Senior Financial Analyst,

Insurance-Linked Securities

yuhmei.chen@ambest.com

or

Elmo W. Chin, 908-439-2200, ext. 5227

Assistant Vice President,

Insurance-Linked Securities

elmo.chin@ambest.com

or

Jim Peavy, 908-439-2200, ext. 5644

Assistant Vice President, Public Relations

james.peavy@ambest.com


Source: A.M. Best Company


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