4 June 2018Analysis

AM Best gives 'excellent' rating to Vermont waste management captive

Ratings agency AM Best has affirmed the financial strength rating of A- (Excellent) of National Guaranty Insurance Company of Vermont (NGIC), the Burlington-based captive insurer of Waste Management.

The outlook is stable, and the ratings reflect NGIC's balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.

AM Best said the captive benefits from the parental support and robust risk management strategies afforded to it from Waste Management as important factors of the company’s overall financial assurance program. The active risk management has benefited capitalisation through loss prevention to generate consistently positive earnings.

The ratings are partially offset by the large percentage of policyholder surplus loaned back to Waste Management in the form of a 24-hour demand note that has caused liquidity measures to underperform its peers. This is partially mitigated by Waste Management's balance sheet size and operating cash flow, which could readily fulfil the loan obligation, if required. The Vermont

Department of Financial Regulation also monitors its capital level, which requires the company to maintain a certain aggregate exposure to capital ratio.

AM Best stated that positive rating action could occur if NGIC’s operating performance materially improves while maintaining the appropriate level of risk-adjusted capitalization. Negative rating impact could occur if the company’s balance sheet strength deteriorates materially to levels that do not support its risks - or if the parent experiences financial distress and deterioration to its credit profile.