12 June 2023Analysis

AM Best affirms ratings of Waste Management’s captive

AM Best has affirmed the financial strength rating of A- and the long-term issuer credit rating of "a-" of National Guaranty Insurance Company of Vermont.

The outlook of these credit ratings is stable.

The rating agency said that the ratings reflect NGIC’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).

The ratings also reflect NGIC’s strategic role as the captive insurance company of Waste Management, a major provider of comprehensive waste management environmental services in North America. As a strategic and integral part of WM’s ERM program, the parent wholly funded the captive’s capitalisation in the form of a demand note that generates net investment income to augment surplus annually. Further supplements have been provided in form of letters of credit as changes in exposures warrant. NGIC benefits from WM’s robust risk management strategies, which enable it to support a portion of WM’s financial assurance program efficiently and appropriately.

According to AM Best NGIC’s surplus growth is organic and steady as the company has been able to enhance its profitability over the past five years by significantly reducing its underwriting expenses. It has not had any losses in the program; however, NGIC has an expense ratio that is higher than others in the surplus lines composite due to the nature of the financial assurance line of business and expenses focused on its comprehensive risk mitigation.

Positive rating action could occur if a sustained positive trend in balance sheet strength continues in the near term. Negative rating action could occur if AM Best's perception of the parent’s ability and willingness to support the captive changes significantly. Negative rating impact also could occur if the company’s balance sheet strength or risk-based capitalisation weakens materially to a level that does not support its risks.