Vermont-based captive gets A- rating

Vermont captive insurer Sustainable Assurance Company has had an A- financial strength rating assigned to it by ratings agency AM Best. 

The Vermont-based captive, a wholly owned captive insurance subsidiary of Lancaster County Solid Waste Management Authority. The outlook is stable.

“SAC’s operating performance reflects actuarially needed premium for its coverage offerings of property and terrorism insurance,” the ratings agency said. “Though SAC is a newly formed company (2020), LCSWMA has experience with both offered lines since the mid-1980s.

“ Historically, SAC has had minimal losses dating to its legacy experience at the parent level and offers a portion of the coverage of these low frequency, high severity loss type lines from the captive for efficiency. The favourable legacy experience of LCSWMA in the offered coverage lines is fully reflected in management’s projected underwriting results.”

AM Best said LCSWMA is a Pennsylvania municipal authority, recognised nationally for leadership in the solid waste industry. SAC’s risk-adjusted capitalization is expected to remain at the strongest level, supported by increased retention of earnings. SAC has a conservative investment portfolio with conservative loss reserving strategies.

It added that the ratings reflect SAC’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.

“The stable outlooks consider AM Best's expectation that SAC’s balance sheet strength assessment fundamentals will continue to strengthen over the medium term, with internal profit generation and retention levels that support continued growth in the company’s surplus, generated from strong operating performance,” it said. 

“SAC’s balance sheet strength assessment is underpinned by its risk-adjusted capitalization, which is at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR) across all return periods in standard scenarios. However, the captive has a relatively high retention to surplus ratio, which challenges its risk-based capitalization in a stressed scenario. AM Best’s view of SAC’s probable maximum loss (PML) is based on the captive’s offered limits, which readily exceed historical loss experience in SAC’s offered lines.

The ratings benefit from the inherent benefits of implicit support and financial flexibility from a fiscally sound parent, as part of the organization’s comprehensive and historically successful enterprise risk management from which the captive emanated, partially as an alternative to the hard commercial insurance market. “

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