AM Best has revised the outlooks of the HAI Group members to negative from stable and affirmed the Financial Strength Rating (FSR) of A (Excellent).
This includes the Housing Authority Property Insurance (HAPI), Housing Authority Risk Retention Group (HARRG) and their jointly owned subsidiary, Housing Enterprise Insurance Company (all members of and together known as the HAI Group).
According to the rating agency, the ratings of the HAI Group reflect its excellent capitalisation, very strong operating results, leading position and proven expertise in the niche public housing authority market.
AM Best deviated from its “Rating Members of Insurance Groups” criteria in regard to certain ownership limitations that relate to the existence of a risk retention group within the HAI Group.
“Partially offsetting these positive rating factors is the group’s concentration of risk in the public housing authority sector, which magnifies the impact of market cycles, public policy and legislative changes,” AM Best said.
“Another offsetting factor is the erosion in the group’s underwriting profitability over the most recent five-year period due to an increase in frequency and severity of claims.”
Furthermore, due to the prevailing low interest rate environment, investment income has also declined over the most recent five-year period, resulting in a decrease in the company’s total return metrics. As a result of these factors, AM Best has placed a negative outlook on the group.
“A negative rating impact could occur if underwriting performance shows a continued decline or demonstrates volatility that negatively affects earnings and capitalisation over time. In addition, a negative rating impact may occur if there is a material shift in risk profile that could potentially undermine the stability and profitability of the company,” AM Best concluded.
AM Best, North America, HAI Group, Insurance, Captives, Ratings, Legislation, Risk management