AM Best Takes Various Credit Rating Actions on Certain Insurance Companies Managed by Privilege Underwriters, Inc.

AM Best has downgraded the Financial Strength Rating (FSR) to A (Excellent) from A+ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “a+” (Excellent) from “aa-” (Superior) of Privilege Underwriters Reciprocal Exchange (PURE). At the same time, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” (Excellent) of PURE Specialty Exchange (PSE) (Scottsdale, AZ). AM Best also has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of PURE Insurance Company (PIC). The outlook of these Credit Ratings (ratings) is stable. PURE and PIC are domiciled in Fort Lauderdale, FL. Concurrently, AM Best has withdrawn the ratings of PIC as the company has requested to no longer participate in AM Best’s interactive rating process.

The ratings of PURE reflect its balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM). The revision in the operating performance assessment to marginal from adequate reflects the negative impact of macro conditions on underwriting results, including higher than average catastrophe losses, increased reinsurance costs and inflationary pressures. The company continues to address the challenging macro trends through rate increases along with other various underwriting actions. The ratings consider implicit and explicit support provided by Tokio Marine Holdings, Inc. (TMHD), and its lead insurance operating company, Tokio Marine & Nichido Fire Insurance Co., Ltd. (TMNF), and the affiliation between the U.S. subsidiaries of TMNF. PURE aligns with TMHD’s strategy of expanding its international business through acquisition in developed and emerging markets, in addition to providing diversification of revenues and customer segments.

The ratings of PSE reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The very strong balance sheet strength assessment reflects PSE’s strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects PSE’s risk-adjusted capitalization to remain within the strongest category with additional positive assessment factors contributing, including financial flexibility, quality of assets and its conservative investment portfolio. Partially offsetting these strengths is PSE’s exposure to catastrophe losses, reliance on reinsurance and a capital structure that is comprised mostly of surplus notes issued by PSE to Privilege Underwriters, Inc. The reliance on surplus notes is expected to gradually decrease over time due to organic surplus growth via member surplus contributions and operating profitability.

AM Best assesses PSE’s operating performance as adequate based on most recent results and the fact that the anticipated writings and associated historical loss ratios are well known to the company. AM Best views the company’s business profile as limited given that PSE is a startup entity and will be geographically concentrated in Florida, California, South Carolina, North Carolina and Massachusetts. PSE’s ERM capabilities benefit from the overall framework developed at the ultimate parent level.

The ratings of PIC reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, very limited business profile and appropriate ERM.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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