Best Cuts GMAC Insurance's Rating
NU Online News Service, June 13, 4:01 p.m. EDT?A.M. Best Co. has downgraded the financial strength rating of GMAC Insurance Group to "A" (Excellent) from "A-Plus" (Superior), with a "stable" rating outlook, prompted by the weakened financial strength of its parent company General Motors because of significant pension costs.
In its ratings downgrade report, the Oldwick, N.J.-based rating firm said G.M.'s diminishing financial strength may pressure Winston-Salem, N.C.-based GMAC to support its parent company by means of increased dividend demands.
The ratings agency also noted other negative factors, including GMAC's increasing underwriting leverage and high investment leverage caused by exposure to equity market volatility.
And surplus losses, combined with premium growth, have resulted in gradually increasing underwriting leverage, Best said. Another problem, the firm noted, is that a large portion of GMAC's business–extended warranty and non-standard automobile–remains vulnerable during the current economic downturn.
But despite the downgrade, Best's new "A" rating means GMAC still has strong stand-alone capitalization, solid operating results and well-established market presence. Currently GMAC is one of the top 35 property-casualty insurers in the United States and one of the largest providers of extended service contracts, Best said.
These positive rating attributes, the ratings agency said, are the results of "management's focused operating strategy, extensive product knowledge, diversified product offerings and multiple distribution channels." GMAC has consistently generated capital through operating earnings, which shows disciplined underwriting, an efficient cost structure and a steady investment income,. Best said.
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