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AM Best Downgrades Credit Ratings of Guardian Insurance Company, Inc. & Echelon Property & Casualty Insurance Company; Places Credit Ratings Under Review With Negative Implications

March 5, 2020 GMT

OLDWICK, N.J.--(BUSINESS WIRE)--Mar 5, 2020--

AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” from “bbb+” and affirmed the Financial Strength Rating (FSR) of B++ (Good) of Guardian Insurance Company, Inc. (Guardian) (St. Thomas, U.S. Virgin Islands). Concurrently, AM Best has downgraded the FSR to B- (Fair) from B (Fair) and the Long-Term ICR to “bb-” from “bb” of Echelon Property & Casualty Insurance Company (Echelon) (Chicago, IL). AM Best has placed all of these Credit Ratings (ratings) under review with negative implications.

The ratings of Guardian reflect its balance sheet strength, which AM Best categorizes as adequate, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The rating downgrade of Guardian’s Long-Term ICR reflects a revision in AM Best’s view of the company’s balance sheet strength to adequate from very strong. The company’s risk-adjusted capitalization has been impacted negatively by significant premium growth and operating losses. The operating losses are due to reserve deficiencies caused by the significant amount of unseasoned business, which has caused policyholder surplus to deteriorate. Although management has implemented rate increases and revised the company’s underwriting guidelines in an attempt to improve results, these actions have not proven sufficient to return the company to profitability. In addition, the company has above average leverage measures and a high dependence on reinsurance, as it is concentrated geographically in a catastrophe-prone area.

The ratings of Echelon, Guardian’s wholly owned subsidiary, reflect its balance sheet strength, which AM Best categorizes as weak, as well as its marginal operating performance, limited business profile and appropriate ERM.

The rating downgrades of Echelon reflects a continued material decline of its risk-adjusted capitalization that has resulted from unfavorable reserve development. The deterioration in reserves is the result of a significant increase in unseasoned non-standard personal automobile business. The new business and decline in capitalization has increased leverage and reflects the company’s increased vulnerability to continued reserve inadequacy.

Guardian and Echelon’s under review with negative implications status considers Lockhart Companies, Inc.’s (the ultimate parent) expected capital contribution to be executed in March 2020. The negative implications reflect the potential for the ratings to be downgraded in the event the capital contribution is insufficient to maintain the current balance sheet strength assessments. These ratings will remain under review until AM Best reviews these companies’ final year-end 2019 financial statements and the capital contribution is executed.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2020 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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PUB: 03/05/2020 11:10 AM/DISC: 03/05/2020 11:10 AM