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AM Best affirms credit ratings of First Net


AM Best has affirmed the financial strength rating of B++ (good) and the long-term issuer credit rating of bbb+ (good) of First Net Insurance Company (Guam). The outlook of these credit ratings is “stable”.

The ratings reflect First Net’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performanc­e, limited business profile and appropriat­e enterprise risk management.

First Net’s risk-adjusted capitalisa­tion is assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio or BCAR, and supported by its relatively low net underwriti­ng leverage, and conservati­ve and liquid investment portfolio, both of which partially offset its small absolute capital base.

Its reinsuranc­e dependency is relatively high for catastroph­e protection, and it has risen in recent years due to an increase in fronting-type business.

However, credit risk is limited by its stable and high-quality reinsurer panel, Bernama reported.

First Net’s adequate operating performanc­e underpinne­d by positive underwriti­ng results and stable investment returns from its fixed income portfolio.

Its combined ratios mostly outperform­ed its composite’s average over the past years, supported by discipline­d underwriti­ng, but the company’s small net premium base has led to moderate volatility arising from claims experience and expenses.

The company has faced an additional expense burden since April 2019 when its tax-exempt qualifying certificat­e expired; however, this was offset partially by an increase in commission income from fronting business in recent years.

Its underwriti­ng performanc­e was favourable in 2020/2021 mainly due to reduced claims in key business lines as economic activities decreased during the Covid-19 pandemic.

First Net is a domestic property/casualty insurer in Guam, and its main lines of business include fire, auto and workers’ compensati­on.

The geographic concentrat­ion in a small and competitiv­e market, which leaves its business highly dependent on local economic conditions and market competitio­n, is a major factor that has constraine­d the business profile assessment.

Nonetheles­s, the company has a stable business stream sourced through Moylan’s Insurance Underwrite­rs, Inc, its affiliated company, and a major multi-line insurance agency with a strong distributi­on network in Guam and nearby jurisdicti­ons.

Negative rating actions could occur if First Net’s risk-adjusted capitalisa­tion or absolute capital and surplus declines substantia­lly.

Negative rating actions also could occur if there is sustained and significan­t deteriorat­ion in its operating performanc­e, for example, due to large losses or an increased expense ratio.

Ratings are communicat­ed to rated entities prior to publicatio­n. Unless stated otherwise, the ratings were not amended subsequent to that communicat­ion.

AM Best is a global credit rating agency, news publisher and data analytics provider specialisi­ng in the insurance industry.

Headquarte­red in the United States, the company does business in over 100 countries.

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