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TMCNet:  A.M. Best Affirms Ratings of SureTec Insurance Company and Assigns Ratings to Its Subsidiary, SureTec Indemnity Company

[January 31, 2014]

A.M. Best Affirms Ratings of SureTec Insurance Company and Assigns Ratings to Its Subsidiary, SureTec Indemnity Company

OLDWICK, N.J. --(Business Wire)--

A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of "a" of SureTec Insurance Company (SIC), a subsidiary of SureTec Financial Corp. The outlook for both ratings is stable. Concurrently, A.M. Best has assigned an FSR of A- (Excellent) and an ICR of "a-" to SureTec Indemnity Company (SINC), a recently established subsidiary of SIC. The outlook assigned to these ratings is stable. All companies are headquartered in Houston, TX.

The ratings of SIC recognize its superior capitalization, historically strong operating performance driven by profitable underwriting results and sustained favorable reserve development, as well as the financial flexibility provided by its parent. These positive rating factors are partially offset by SIC's elevated loss ratios in 2011 and 2012, which were driven by contract bond losses particularly in the Florida market (the company exited the Florida contract bond market in 2011), its significant premium concentration within Texas and California, the execution risk associated with geographic and product expansion and the somewhat elevated underwriting expense ratio relative to its peer composite. The outlook reflects A.M. Best's expectation that management's conservative underwriting approach should deliver strong operating results.

The ratings assigned to SINC reflect its supportive levelof risk-adjusted capitalization, the historical profitability of its contractors license bond (CLB) book, which was assumed from SIC in 2013, and the implicit support of SIC. These positive rating factors are partially offset by the concentration of premium writings in California CLBs, SINC's short operating history (operations commenced in 2013) as a stand-alone entity and the execution risk associated with product expansion initiatives given current market conditions. The outlook reflects A.M. Best's expectation that results will be favorable on a stand-alone basis and that the company will continue to receive management and financial support from its parent.


Factors that could result in downward rating movement for SIC include a sustained weakening in its operating earnings due to deteriorating underwriting performance or material weakening in its overall risk-adjusted capitalization.

Factors that could result in upward movement for SIC's ratings include an improvement in its operating earnings and resulting return on revenue measures sustained over a period of time. Accordingly, this would enhance SIC's ability to generate additional organic surplus growth while strengthening its overall risk-adjusted capitalization.

Negative rating actions on SINC's ratings could occur if underwriting or operating performance differs materially from A.M. Best's expectations or there is a considerable deterioration in risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio (BCAR). SINC's ratings also may be negatively impacted if its strategic importance to SIC no longer warrants rating enhancement.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.


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