20 December 2016USA analysis

Security America Risk Retention Group downgraded following loss

AM Best has downgraded the financial strength rating of Security America Risk Retention Group (SARRG), a risk retention group formed by the Electronic Security Association, to B+ from B++. The outlook of the ratings has also been revised to negative from stable.

According to AM Best, the downgrades and revised outlook reflect a sizeable surplus decrease of approximately 27 percent as of third-quarter 2016, as well as adverse reserve development mainly driven by a sizeable claim involving extra contractual obligation coverage, that in the opinion of SARRG, was not provided for and therefore was not reimbursable by the risk retention group’s reinsurance programme.

“This net underwriting loss reflects the increased loss and loss adjustment expense related to the claim, which contributes to an unfavorable combined ratio of more than 200 percent for the first nine months of 2016,” the rating agency said.

“The rating actions and negative outlooks also consider the corresponding material decline in risk-adjusted capitalisation associated with the surplus loss and uncertainty regarding future results based on the company’s current exposures.”

In response to unfavourable underwriting performance, AM Best believes that the group’s management continues to focus on improving performance through its newly appointed marketing, underwriting and policy servicing partners, as well as implementing improvements in its policy language to avoid future instances involving unintended coverage.

SARRG was formed by the Electronic Security Association and incorporated as a risk retention group created specifically to offer general and professional liability coverage custom designed for its members.