A.M. Best has affirmed the financial strength rating of A- (Excellent) and the issuer crediting rating “a-” of Standard Casualty Company (Standard Casualty) (New Braunfels, TX). The outlook for both ratings is stable. Standard Casualty is a subsidiary of Cavco Industries Inc. (Cavco) [NASDAQ: CVCO], a manufacturer of factory-built homes.
The affirmation of the ratings reflects Standard Casualty’s adequate risk-adjusted capitalization, generally favorable operating results and its excellent local market knowledge. During the latest five-year period, Standard Casualty reported positive pre-tax operating income driven by favorable net investment income and to a lesser extent, generated underwriting income in three of those five years. Standard Casualty returned to an underwriting profit in 2013, and these improved underwriting results continued in 2014. Underwriting losses were reported through the third quarter of 2015 due to increased weather-related losses in Texas. In addition, Standard Casualty maintains a generally conservative investment portfolio and favorable balance sheet liquidity. Finally, the company benefits from the financial flexibility of Cavco, which made capital infusions to Standard Casualty in 2012 and 2014 to assist in its aggressive growth initiative.
These positive rating factors are partially offset by Standard Casualty’s operating losses in two of the past five years, driven by frequent and severe weather-related events, along with above average fire losses. This was particularly evident in the earlier part of the latest five year period as reflected by sizable underwriting losses. As a predominantly Texas writer, along with recent aggressive growth in Arizona and New Mexico, Standard Casualty’s results are exposed to frequent and severe weather-related events, as well as judicial, regulatory and economic concerns. However, these risks are partially mitigated as Standard Casualty historically has adhered to strict underwriting guidelines and a conservative operating philosophy.
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