AM Best upgrades Signet Jewelers’ captive Zale Indemnity
AM Best has upgraded the Long-Term Issuer Credit Rating of Zale Indemnity Company (ZIC) to bbb+ (Good) from bbb (Good) and affirmed its Financial Strength Rating (FSR) of B++ (Good). The outlook of the Long-Term ICR has been revised to stable from positive, while the outlook of the FSR is stable.
AM Best said the ratings reflect ZIC’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.
The upgrade in ZIC’s operating performance to adequate from marginal is supported by management’s decision to retain its operations as a contractual liability insurance policy (CLIP) provider for its ultimate parent, Signet Jewelers and its affiliates.
ZIC’s revenue comes from fee income associated with its CLIP business, which diminishes underwriting risk, if any, for the captive. The upgrade is further supported by ZIC’s operating performance metrics as both the combined and operating ratios improved significantly over the most recent five-year period.
As a captive insurer of Signet Jewelers ZIC is a provider of third-party credit insurance and warranty coverage to the customers of its affiliated retailers. Management has affirmed ZIC’s value to the organization’s growth as ZIC provides a strategic alignment in offering CLIPs on extended warranty agreements in states that require them by law. The operations for ZIC as a CLIP provider limits its underwriting risk, along with limited surplus growth.
ZIC’s ratings reflect its solid level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), strong liquidity and the high credit quality of its investment portfolio. Offsetting rating factors include a limited business profile and limited organic capital growth due to the small size and scope of its operations.
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