AM Best affirms A- rating for Prism Assurance
AM Best has affirmed the financial strength rating of A- and the long-term issuer credit rating of “a-” of Vermont-registered Prism Assurance. The outlook of these ratings is stable.
The ratings reflect Prism’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The stable outlooks reflect AM Best's expectation that the captive insurer will maintain its very strong level of balance sheet strength and adequate operating performance supported by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), steady streams of income from intangible assets and the execution of prudent risk management strategies. Further, Prism also has sufficient liquidity supported by the company’s ability to call on its loan-back to the parent, in addition to the financial flexibility afforded through the parent company, Apogee Enterprises, if needed.
As a single parent captive, Prism inherently benefits from a low expense structure/ratio with minimal distribution, driving an expense ratio that is much lower than that of traditional commercial insurers. There is manageable volatility in the company’s underwriting performance from the low frequency, high severity type claims it was established to cover. The parent contributes trademarks and associated royalty income to the captive in addition to interest from the parent loan-back to provide a steady stream of net investment income. Profitability metrics in terms of return on revenue, return on equity, and return on invested assets far exceed industry averages on both five- and 10-year terms.
Prism is the single-parent captive insurance company of Apogee, one of the largest architectural design and construction companies in the United States. AM Best assesses Prism’s business profile as limited as the company provides very specific lines of coverage to Apogee, although its risks do have a level of geographic diversification, reflecting the scope of the parent’s operations. As a captive, Prism is an integral component of the Apogee organisation’s overall risk management capability and awareness. The company is interwoven into Apogee’s ERM program, and as a result, Prism displays excellent risk identification and mitigation processes. Prism works cohesively with business units across the overall organisation to reduce claims severity and frequency.
Negative rating impact could occur if a deterioration of Prism’s operating performance leads to a material loss of risk-adjusted capitalisation or if AM Best's perception of the parent's ability and willingness to support the captive materially declines. Positive rating action, although unlikely in the near term, could occur due to a sustained trend of improvement in the company's operating performance.
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