31 October 2016Actuarial & underwriting

AM Best affirms financial strength rating of Bison to “excellent”

AM Best has affirmed the financial strength rating of A (Excellent) of Bison Insurance Company (Bison). The outlook of the rating is stable.

According to the rating agency the affirmation reflects Bison’ historically excellent risk-adjusted capitalisation, consistent operating profitability driven by favourable underwriting result, conservative reserve level and effective enterprise risk management control. The rating also recognises Bison’s history of maintaining sufficient capital and financial resource to support it ongoing obligation.

However, AM Best added that partially offsetting these positive rating factors are Bison’s volatile underwriting results due to its low-frequency, high-severity risk profile, coupled with its high net retained limits relative to its available capital.

Additionally, the continually changing risk profile of Bison’s primary insureds directly affects its risk profile. This is mitigated by the company’s conservative reserving philosophy and the ongoing demonstrated support from its parent, Duke Energy Corporation (Duke Energy).

Bison insures select risks for Duke Energy providing a variety of coverage in property/casualty lines of business. While favourable operating performance has been reported consistently in the most recent five years and the first nine months of 2016, underwriting results are volatile, hence susceptible to occasional outsized losses, as evidenced in 2014 when it recorded an underwriting loss of $87 million, which eroded $49 million or 25 percent of the company’s capital and surplus.

Nonetheless, this loss is somewhat mitigated by favourable geographic spread of risk and overall trend of favourable loss history. The outsized shock losses, which generally stem from high property losses, recur in five- to seven-year cycles.