AM Best praises SAC performance as it affirms ratings
AM Best has affirmed the financial strength rating of A- and the long-term issuer credit rating of “a-” of Sustainable Assurance Company (SAC). The company is a wholly owned captive subsidiary of Lancaster County Solid Waste Management Authority (LCSWMA). The outlook of these ratings is stable.
The ratings reflect SAC’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
The stable outlooks reflect AM Best’s expectation that SAC’s balance sheet strength assessment is sustainable with supportive risk-based capitalisation; that the captive will continue to generate strong operating performance from results in the near to intermediate term; and that there will not be any change in AM Best’s perception of the ability and willingness of SAC’s parent, LCSWMA, to support it.
SAC’s strong balance sheet assessment reflects the company’s very strong risk-based capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s surplus is somewhat small and, therefore, has a high retention to surplus ratio, challenging its capital adequacy in stressed scenarios. That said, the company has high quality capital, a conservative investment portfolio, history of minimal claims, and, ultimately, explicit and implicit support from its parent, for whom it was founded in 2021. The parent company has a long history of successful ERM practices, from which the captive structure emanated, in part as a strategic alternative to the more volatile commercial insurance market. Although the captive is a relatively new legal entity, the parent has favorable legacy experience in the offered coverage lines prior to forming SAC, reflecting prospectively low combined ratios and strong underwriting results. The captive projects underwriting modest profitability in each of the next five years, driven primarily by underwriting performance, supplemented by modest net investment income. Prospectively, SAC plans to grow capital and surplus through internally generated capital from profitable underwriting and overall operations. No dividends are planned.
AM Best assesses SAC’s business profile as limited due to its structure as a single-parent captive of LCSWMA. LCSWMA, a municipal authority incorporated in Pennsylvania in 1954, is recognised nationally for its leadership in the solid waste management sector. This concentration results in a relatively narrow product portfolio, with a focus on property and terrorism coverage, and a geographic concentration of exposures primarily in central Pennsylvania.
Positive rating action could occur if SAC’s balance sheet strength assessment improves, driven through its ability to grow surplus organically from profitable operations in line with management’s projections. Conversely, negative rating action could occur if the company’s balance sheet assessment weakens, reflecting higher severity losses than expected or a more aggressive stance in capital management. Negative rating action could occur if AM Best’s perception of the parent’s ability and willingness to support the captive weakens.
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