A.M. Best Co. has affirmed the financial strength ratings (FSR) of B (Fair) and issuer credit ratings (ICR) of “bb+” of First Acceptance Insurance Group (First Acceptance) (Nashville, TN) and its members. Concurrently, A.M. Best has affirmed the ICR of “b” of First Acceptance Corporation (Delaware) (NYSE: FAC), the group’s ultimate parent holding company. The outlook for all ratings remains positive. (Please see below for a detailed listing of the companies.)

The affirmation of the ratings is primarily based on the group’s historically high underwriting leverage ratios and weak capitalization, along with unstable loss reserve development in recent years. These negative rating factors are partially offset by a stronger balance sheet and improved leverage in recent years coupled with historically positive earnings. The group members operate under an intercompany pooling arrangement and proportionately share in the overall underwriting performance of First Acceptance.

In addition, First Acceptance benefits from the added financial flexibility of its publicly traded holding company to raise capital through equity or debt during favorable investment markets. The holding company’s current debt-to-capital and interest coverage ratios are modest and within an acceptable range for the current ratings.

Furthermore, these rating actions contemplate that management will successfully navigate through today’s challenging markets by continuing to control growth and taking steps to improve; pricing and rate setting processes; fraud detection; underwriting; and upgrading its marketing and distribution strategy.

The ratings have been affirmed for First Acceptance Insurance Group and its following pooled members:
  • First Acceptance Insurance Company, Inc.
  • First Acceptance Insurance Company of Georgia, Inc.
  • First Acceptance Insurance Company of Tennessee, Inc.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition , which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “ Rating Members of Insurance Groups”; and “ A.M. Best’s Ratings & the Treatment of Debt.” Methodologies can be found at www.ambest.com/ratings/methodology.

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