HONG-KONG, November 18, 2022–(BUSINESS WIRE)–AM Best affirmed the financial strength rating of B++ (good) and the long-term issuer credit rating of “bbb+” (good) of First Net Insurance Company (First Net) (Guam). The outlook for these Credit Ratings (ratings) is stable.
The ratings reflect First Net’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate management of business risks.
First Net’s risk-adjusted capitalization is valued at the highest level, as measured by Best’s capital adequacy ratio (BCAR), and supported by its relatively low net underwriting leverage and conservative investment portfolio and liquid, which partly offset its low absolute capital base. Its reliance on reinsurance is relatively high for catastrophe protection, and has increased in recent years due to an increase in fronting business. However, credit risk is limited by its panel of stable and quality reinsurers.
First Net’s adequate operating performance is underpinned by positive underwriting results and stable returns on investments in its fixed income portfolio. Its combined ratios have mostly exceeded its composite average in recent years, supported by disciplined underwriting, but the company’s small net premium base has resulted in moderate volatility resulting from claims and expense experience. . The company has faced an additional expense charge since April 2019, when its tax exemption certificate expired; however, this has been partially offset by an increase in commission income from fronting activities in recent years. Its underwriting performance was favorable in 2020/2021, mainly due to the reduction in claims in the main lines of business, as economic activities decreased during the COVID-19 pandemic.
First Net is a domestic property and casualty insurer in Guam, and its primary lines of business include fire, auto, and workers’ compensation. Geographic concentration in a small competitive market, which leaves its business highly dependent on local economic conditions and market competition, is a major factor that limited the assessment of the company’s profile. Nonetheless, the company has a steady stream of business from Moylan’s Insurance Underwriters, Inc., its affiliate, and a large multi-line insurance agency with a strong distribution network in Guam and neighboring jurisdictions.
Negative rating actions could occur if First Net’s risk-adjusted capitalization or absolute capital and surplus decline materially. Negative rating actions could also occur in the event of a sustained and significant deterioration in its operating performance, for example due to large losses or an increase in the expense ratio.
Ratings are communicated to rated entities before publication. Unless otherwise indicated, the ratings have not been changed as a result of this communication.
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