market segment report: us commercial auto results continue ... · 2 market segment report us...

The industry’s loss and combined ratios have trended unfavorably for several years and, in 2017, reached their highest levels in a decade

March 28, 2019

Analytical Contact:David Blades, Oldwick+1 (908) 439-2200 Ext. [email protected]

Contributor:Jennifer Marshall, Oldwick

2019-020

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BEST’S MARKET SEGMENT REPORT

US Commercial Auto Results Continue to DeteriorateAM Best is maintaining its Negative outlook on the commercial auto segment for 2019. For the past several years, the performance of the commercial automobile segment has lagged that of other property/casualty industry segments and through third quarter 2018—a decline that has shown no signs of abating. Various indicators suggest that writers of commercial automobile insurance still face numerous obstacles, and most of these insurers are experiencing the negative effect of writing this line of coverage on their overall results.

However, we expect the line’s overall results to show some improvement in 2019, after several years of rate increases. Prior years’ loss reserves continue to adversely affect current calendar year results. As a result, we expect deterioration in the line’s net combined ratio for 2018. For 2019, we expect companies to continue pushing for additional rate increases more commensurate with prevailing exposures and to bring the line closer to rate adequacy amid the ongoing escalation in current year loss costs.

The rated commercial auto insurers report that they have implemented myriad measures aimed at addressing the issues considered the most problematic relative to exposures to commercial auto losses, risk management, underwriting and pricing. Unfortunately, based on industry profit and loss results, these enhanced underwriting pricing measures have yet to improve rate adequacy.

Profitability Cause and Effect: Loss Frequency and Severity TrendsOn a net basis, both loss and combined ratios have trended unfavorably for commercial auto for several years now, reaching their highest level in a decade in 2017 (Exhibit 1), with further deterioration likely for 2018. Years of inadequate pricing and woefully inadequate reserving have resulted in a premium base that has been unable to keep pace with deteriorating loss frequency and severity trends—just one of the causes of the segment’s poor results.

The challenges for underwriters have increased the last few years, as the declining unemployment rate and the country’s economic growth have led to more cars on the road—not just private passenger vehicles, but also commercial vehicles used for sales, service, transport, etc. Higher gasoline prices may have resulted in fewer miles driven for the personal auto segment but there doesn’t appear to have been a corresponding decline in commercial auto. The tremendous growth in online retail sales may be leading to an increase in miles driven for retail enterprise commercial auto fleets.

More vehicles traveling more miles have led to an increase in accident frequency. The state of ill repair of many of the country’s roadways has almost assuredly had a negative effect on accident frequency as well. Private passenger auto insurers have experienced an increase in claims frequency owing to the rise in drivers’ smartphone usage that leads to distracted driving; similar distractions for commercial vehicle drivers, coupled with the use of in-vehicle technology, have also increased commercial auto loss frequency.

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Market Segment Report US Commercial Auto

Higher labor and repair costs owing to the more complex materials and advanced technology in newer, more sophisticated vehicles that companies have added to their fleets as the economy expands can increase claims costs in line with rising accident frequency. Additionally, the growing economy has exacerbated the issues faced by commercial enterprises stemming from the shortage of experienced drivers. The critical need for drivers can lead to employers loosening their risk management standards, particularly those involving screening and driver training. Less experienced drivers traveling on unfamiliar routes has translated into more accidents.

The increase in claims severity has arguably been the key factor for much of the deterioration in commercial auto results. Rising repair costs for newer vehicles made out of more expensive materials and replete with newer safety features and advanced instrumentation have contributed to the increase. Additionally, a growing number of bodily injury claims are being litigated, resulting in high judgment verdicts in some cases. Third-party litigation funding has grown in recent years, presenting commercial auto insurers with a problem. Cases that previously might have been settled in less time, and likely for less money, are open longer, driving up legal expense costs. If the verdicts are unfavorable, these cases also result in higher indemnity payments.

Repairs are not the only costs that have increased because of technology; advancements in medical care also have contributed to higher claims costs. The rise in costs for surgeries, medications, and other treatments for bodily harm resulting from collisions has been moderate in recent years but has still risen faster than overall consumer inflation. According to the US Bureau of Labor Statistics, prices for medical care were 14.0% higher in 2018 than in 2013.

Exhibit 2 shows the steady decline in performance of the US commercial auto line. On a calendar year basis, commercial auto underwriting has incurred a loss every year from 2011 through 2017, with net incurred losses growing 74% since the end of 2010, while net earned premium grew only about 40%.

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Expense Ratio Loss & LAE Ratio Combined Ratio

Exhibit 1US Commercial Auto – Net Underwriting Performance

Source: AM Best data and research

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In the years prior to 2008, the line’s calendar year results had been profitable, causing insurers to compete aggressively. From 2008 through 2010, the segment’s profitability declined owing to the financial crisis. Unemployment rose to 10% in December 2009, and with that the number of miles driven by Americans declined, leading to lower frequency. Commercial business activity and truck tonnage also decreased, leading to lighter truckloads and therefore lower claims severity. Because improved underwriting results provided an opportunity to lower prices, insurers priced commercial auto accounts more aggressively in hopes of expanding market share, with the competition for the larger-account fleet business particularly fierce. As the economy picked up steam, underwriting losses grew in magnitude and the declines in claims frequency and severity proved to be short-lived.

Commercial Auto Remains a Troubled LineThe commercial auto segment’s results, measured by the combined ratio of the last five years, have consistently lagged those of the commercial lines business in the aggregate and continue to underperform the P/C industry as a whole (Exhibit 3). Adverse reserve development has contributed significantly to increasingly larger net underwriting losses over the past six years (Exhibit 4). One-year reserve development more than tripled from the year-end 2012 total of $541 million, to a high of just under $1.9 billion in 2016, which improved only slightly in 2017, when it declined to $1.6 billion.

Insurers appeared to suffer from an initial period of inertia, reacting more slowly when market indicators first started to show that negative loss trends were outpacing rate increases. Given the desire to maintain the top line and market share, that some companies would take a more measured approach to avoid overreacting to what might be temporary market conditions is unsurprising. However, even for those companies that did move swiftly to address the deterioration in results, there was a natural lag between underwriting measures taken to address risk selection, pricing, and coverage decisions, and those changes being fully recognized in premium price increases and changes in loss experience. Some of the rated insurers have detailed for AM Best analysts the plethora of changes they have made, which include adjusting their risk appetite for certain classes and types of risks and using enhanced data analytics tools for more granular analyses and better decision making. Nonetheless, profitability remained pressured through the end of 2018, and, as loss costs rise, insurers continue to play catch up.

Data from the Council and Insurance Agents and Brokers’ (CIAB) quarterly survey since 2010 show that insurers have been responding to negative underwriting trends with rate increases since the third quarter of 2011, as profitability began moving in a negative direction (Exhibit 5).

Exhibit 2US Commercial AutoUnderwriting Income Calculation, 2008-2017($ millions)

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Net Premiums Earned 24,613 22,877 21,378 21,137 21,908 23,369 25,057 26,825 28,317 29,557Net Incurred Losses 13,447 12,459 11,744 12,643 13,856 14,709 15,692 17,492 19,306 20,431Net Loss Adjustment Expense 2,854 2,609 2,485 2,501 2,689 2,976 3,098 3,575 3,555 3,848Net Other Underwriting Expense 7,235 7,324 6,604 6,721 6,954 7,454 7,284 8,326 8,397 8,833Net Policyholder Dividends 26 27 19 18 15 16 19 23 25 37Net Underwriting Income/Loss 1,051 459 526 -747 -1,606 -1,786 -1,036 -2,591 -2,966 -3,591


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The commercial auto writers recognized that the prevailing pricing levels were inadequate, but did not fully realize the magnitude of the rate inadequacy.

From 2010 to 2012, the year-end calendar year pure loss ratio of the commercial auto segment rose 15% (from 54.9 to 63.3), while net premiums written (NPW) increased only 5% (Exhibit 6), which hampered the segment’s net profitability. As the economy recovered, the increase in business, combined with inadequate estimates of ultimate losses, became an acute problem,

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Commercial Auto Commercial Lines Total PC Industry

Exhibit 3Net Combined Ratio: Commercial Auto, Commercial Lines, Total PC Industry


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Exhibit 4US Commercial Auto Liability – One-Year Reserve Development

Source: A.M Best data and research

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with unfavorable trends for both loss frequency and loss severity.

Quarterly rate changes in 2017 and 2018 still had not improved the segment’s performance through the third quarter of 2018. Reversing these unfavorable results remains an uphill battle that the industry will ultimately have to overcome through more discriminating risk selection, more appropriate pricing for risks covered, and prudent reserve setting. AM Best believes that average rate increases should start having a discernible impact on the line’s profitability sometime over the near term.

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Exhibit 6US Commercial Auto – NPW vs Pure Net Loss Ratio


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Exhibit 5US Commercial Auto – Quarterly Rate Change

Source: Council of Insurance Agents and Brokers (CIAB)

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Geographically, poor results for commercial auto direct premiums written (DPW) in some of the country’s largest states have been one of the driving forces of the line’s overall unprofitability. As Exhibit 7 shows, the commercial auto segment in six of the top ten states by DPW—Texas, Georgia, Florida, New Jersey, California, and Michigan—had the highest direct loss and DCC (defense and cost containment) ratios in 2017, led by Texas’ 89.9. These numbers are reflective of all commercial automobile business, including liability and physical damage. Of the six states, California—the largest commercial auto market, with just under $4.0 billion in DPW—had the eighth highest loss and DCC ratio, at 83.8. Nevada, at 105.2, and Louisiana, at 95.4, had the highest ratios, and have consistently generated the worst results in the country for commercial auto insurers.

Market Leaders Maintain PositioningThe leading underwriters of commercial auto insurance should be well positioned to weather the headwinds they currently face because they are well capitalized and maintain strong balance sheets. The list of the top writers has been largely the same for several years and consists largely of broad writers of P/C insurance, some of which have a specialty focus on commercial automobile. Through the third quarter of 2018, the top 25 insurers ranked by commercial auto liability DPW grew their YoY premium by 14.4%, slightly higher than the total P/C industry YoY increase of 13.6% (Exhibit 8). In addition, the top 25 accounted for a 64.8% market share, essentially the same as in 2017.

Progressive remains the leading writer by DPW, having grown the DPW of its commercial auto portfolio of risks focused on small (one to two vehicle) fleets of small business concerns, by 48.8% YoY. The growth was achieved in a number of ways, including a shift in the mix of business of its commercial writings to higher-premium policies, an increase in policies in force, in addition to some rate actions. Nevertheless, the direct pure loss ratio on the company’s commercial auto liability business through the first nine months 2018 remained in line with prior years (Exhibit 9). This performance is noteworthy considering the challenging environment for commercial auto writers. Some of the success of the leading writers that

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Exhibit 7Ten States with the Highest Direct Loss and DCC Ratios, 2017


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also have comparatively low loss ratios may be due to the use of predictive modeling tools and techniques, as these insurers have adopted elements from personal lines underwriting models to achieve risk selection quality on commercial lines. The companies making the most effective use of the latest modeling and analytical tools and techniques to enhance their day-to-day underwriting operations are likely to see measurable improvements in results earlier than their competitors.

Among the top 25 writers by DPW, 13 reported higher YoY direct pure loss ratios through the third quarter—so, for the industry overall, the corrective measures companies have taken in terms of direct underwriting profitability are not yet manifesting in results.

Berkshire Hathaway, Allstate, and Farmers Group also achieved appreciable YoY premium growth through the third quarter. Allstate’s premium growth was specifically helped by its

Exhibit 8US Commercial Auto – Top 25 Carriers

YoY %Company Name 3Q 2018 3Q 2017 Change 3Q 2018 3Q 2017Progressive Insurance Group 2,715 1,824 48.8 11.5 8.8

Travelers Group 1,509 1,326 13.8 6.4 6.4

Liberty Mutual Insurance Companies 1,042 1,006 3.5 4.4 4.9

Nationwide Group 960 992 -3.2 4.1 4.8

Berkshire Hathaway Insurance Group 920 716 28.4 3.9 3.5

Old Republic Insurance Group 789 702 12.5 3.4 3.4

Zurich Financial Services NA Group 760 799 -4.9 3.2 3.9

Auto-Owners Insurance Group 506 433 17.1 2.2 2.1

AmTrust Group 464 455 2.0 2.0 2.2

American International Group 460 467 -1.7 2.0 2.3

Tokio Marine US PC Group 454 424 7.2 1.9 2.0

Chubb INA Group 403 520 -22.4 1.7 2.5

The Cincinnati Insurance Companies 365 349 4.6 1.6 1.7

State Farm Group 360 311 15.5 1.5 1.5

Allstate Insurance Group 353 214 64.5 1.5 1.0

Hartford Insurance Group 349 326 7.0 1.5 1.6

Great American P & C Insurance Grp 348 310 12.4 1.5 1.5

W. R. Berkley Insurance Group 345 300 14.9 1.5 1.5

Markel Corporation Group 331 344 -3.8 1.4 1.7

American Transit Insurance Company 328 334 -1.8 1.4 1.6

Farmers Insurance Group 317 205 55.0 1.3 1.0

Erie Insurance Group 302 276 9.5 1.3 1.3

Selective Insurance Group 296 274 8.2 1.3 1.3

Fairfax Financial (USA) Group 283 200 41.2 1.2 1.0

James River Group 279 217 28.7 1.2 1.0

Top 25 15,237 13,323 14.4 64.8 64.3

Total US PC Industry 23,514 20,708 13.6 100.0 100.0Source: AM Best data and research

Direct Premium Written ($ Millions) Market Share (%)

Ranked by Commercial Automobile Liability Direct Premium WrittenThrough 3Q 2018

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agreement with a transportation network company to provide coverage in certain states. The only top company with a notable decline in premium volume was Chubb, with a 22.4% decline through the first nine months of 2018, which (at least in part) appears to have been in line with the company’s strategic planning. Companies that took early steps to raise average rates while enhancing their risk selection practices are likely to see improved results much more quickly than others. Nineteen of the top 25 writers increased their DPW during the first three quarters of 2018, with the direct loss ratios of eight improving over the period. Conversely, three of the six top 25 writers that reported DPW decreases also reported improved direct loss ratios.

The top 15 writers of commercial auto NPW for the 2017 calendar year accounted for approximately 53.2% of the industry’s commercial auto NPW (Exhibit 10). The exhibit compares the combined ratios for all commercial auto insurance for these top writers to the combined ratios for each one’s entire portfolio. Only four of the entities had commercial auto combined ratios below the 100 break-even point, compared to ten of the 15 with overall

Exhibit 9

Ranked by Direct Premiums Written Through 3Q 2018

3Q18 DPW YoY Chg

Company Name ($ Millions) (%) 2014 2015 2016 2017 2018Progressive Insurance Group 2,715 48.8 56.7 55.1 66.2 64.7 64.8

Travelers Group 1,509 13.8 57.1 58.3 55.0 62.2 68.2

Liberty Mutual Insurance Companies 1,042 3.5 63.0 55.6 54.4 111.9 88.6

Nationwide Group 960 -3.2 70.8 68.1 68.5 80.7 76.8

Berkshire Hathaway Insurance Group 920 28.4 48.9 57.8 61.9 56.7 59.2

Old Republic Insurance Group 789 12.5 66.4 64.6 75.8 74.2 69.6

Zurich Financial Services NA Group 760 -4.9 59.8 72.8 63.8 61.7 85.4

Auto-Owners Insurance Group 506 17.1 71.3 57.9 70.0 60.9 63.5

AmTrust Group 464 2.0 74.6 76.4 83.7 82.4 100.3

American International Group 460 -1.7 85.1 94.5 87.4 91.7 92.2

Tokio Marine US PC Group 454 7.1 70.3 77.0 64.1 60.8 59.0

Chubb INA Group 403 -22.4 46.1 40.8 61.6 49.2 86.5

The Cincinnati Insurance Companies 365 4.6 62.2 67.8 71.1 74.1 68.5

State Farm Group 360 15.5 75.2 74.8 91.8 83.2 80.0

Allstate Insurance Group 353 64.5 55.1 72.0 87.0 64.3 89.3

Hartford Insurance Group 349 7.0 62.7 74.2 67.9 78.4 54.2

Great American P & C Insurance Grp 348 12.4 60.1 65.5 64.4 68.0 68.7

W. R. Berkley Insurance Group 345 14.9 70.9 73.1 64.9 60.8 61.9

Markel Corporation Group 331 -3.8 95.7 64.9 72.5 59.4 55.9

American Transit Insurance Company 328 -1.8 46.5 43.8 46.7 47.0 46.2

Farmers Insurance Group 317 55.0 53.3 54.1 51.5 69.4 68.1

Erie Insurance Group 302 9.5 68.4 65.7 64.1 59.9 66.3

Selective Insurance Group 296 8.2 50.4 56.8 64.6 70.3 76.1

Fairfax Financial (USA) Group 283 41.2 52.4 51.0 47.9 62.3 65.2

James River Group 279 28.7 55.2 54.1 57.7 73.0 72.8

Total US PC Industry 23,499 13.4 62.4 64.8 66.5 69.4 70.3


Direct Pure Loss Ratio Through 3Q

Top 25 Commercial Auto Liability Insurers – Direct Premiums and Pure Loss Ratios

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combined ratios lower than 100, highlighting the difficulty even successful underwriters have had in underwriting commercial auto coverage.

The Performance Disparity Among Underwriters is StarkNot only has the commercial automobile line generated the worst results among the major commercial lines of insurance in recent years (as Exhibit 3 shows), but the gap between the companies that outperform the industry and those that underperform is substantial. We reviewed the 2017 performance of the P/C industry insurers providing both liability and physical damage coverage for commercial insurers—those generating at least $500,000 in annual commercial automobile NPW—and found that the top quartile had excellent median combined and operating ratios, 77.7 and 74.1, respectively (Exhibit 11). At the other end of the spectrum, the median corresponding combined and operating ratios for insurers making up the fourth quartile were 138.0 and 131.2—a difference of more than 60 percentage points in the case of the median combined ratio.

The better results of the companies in the top quartile suggest that, besides being quicker to recognize rate adequacy issues, they may have had a better handle on the macroeconomic factors that affect the commercial auto market and make underwriting of the line more challenging. These factors include commercial vehicles (particularly trucks) traveling longer distances and driven by less experienced drivers. Companies that have a more targeted, clearly defined risk appetite often make better risk selection decisions as well. Insurers that have been more proactive about identifying and effectively countering negative commercial auto underwriting factors likely had better results.

Companies may offer commercial automobile coverage for prospective accounts, even when they have assessed that the prospective profit margins on the business are narrow. According to discussions with rated companies and additional industry research, such decisions focus

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Commercial Automobile Combined Ratio Overall Combined Ratio

Exhibit 10US Commercial Auto – Top 15 Writers Net Combined Ratio, 2017Ranked by 2017 Net Premiums Written


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Commercial Automobile Combined Ratio Overall Combined Ratio

Exhibit 10US Commercial Auto – Top 15 Writers Net Combined Ratio, 2017Ranked by 2017 Net Premiums Written


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largely on helping secure other commercial lines of coverage, such as general liability, workers’ compensation, or umbrella/excess liability, which may have greater profit potential. In such cases, successfully securing the order to write lines of coverage deemed to have greater profit potential can offset losses on the commercial auto side and have a positive impact on an account’s underwriting results overall. Such strategic decisions have played a part in the segment’s historical results in comparison to other commercial lines of business.

Acute Issues: Impact of Distracted or Marijuana-Affected DriversDistracted driving remains a particularly problematic emerging risk for insurers of both commercial and personal automobiles. The growing use of cellphones for talking and texting while driving has received considerable news coverage in recent years, but distracted driving includes other activities, such as eating, talking to other passengers, personal grooming, and adjusting the radio or climate controls.

Cellphone Usage The number of distracted drivers owing to the use of cellphones continues to grow, compounding the risk of accidents—particularly, fatal accidents. Law enforcement and government entities, along with insurance companies, are all campaigning to make drivers more aware of these risks.

Distraction-affected crash data is available from the National Highway Traffic and Safety Administration from its Fatality Analysis Reporting System (FARS). The data for the 2016 calendar year (Exhibit 12) was released in March 2018 and showed that 9% of fatal crashes in 2016 were reported as distraction-affected crashes and that 3,450 people were killed in motor vehicle crashes involving distracted drivers. Drivers distracted by cellphones were involved in 14% of the total crashes and total fatalities in 2016.

Driver distraction remains an important issue and further progress in reducing it needs to be made to positively impact loss frequency and severity trends. Commercial auto insurers will need to find a way to better assess the risk classes whose drivers appear to be more prone to distraction-related losses. Understanding drivers’ tendencies will allow insurers to better price for the hazards they pose.

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Quartile 1 Quartile 2 Quartile 3 Quartile 4Median Combined Ratio Median Operating Ratio

Exhibit 11US Commercial Auto – Performance by QuartileMinumum 2017 Premium of $500,000 Commercial Auto Liability and Physical Damage


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Marijuana UsageAs the legalization of marijuana for recreational and medical use began to spread, concerns were raised by the insurance industry about the potential for increased DUI frequency. According to data from the Insurance Institute for Highway Safety and the Highway Loss Data Institute, the frequency of collision claims has risen in Colorado, Nevada, Oregon, and Washington since the beginning of retail sales of marijuana. Similar increases have not been noted in the neighboring states that have not decriminalized recreational use of the product.

Both the personal and commercial auto industries, as well as the insurance companies supporting them, are closely monitoring the effect of the legalization of marijuana on vehicle crashes. Currently, ten states have legalized marijuana use for adults over the age of 21 for medical or recreational purposes, while 33 states, as well as the District of Columbia, have approved marijuana for medical use only. Entities such as the Insurance Institute for Highway Safety and the Highway Loss Data Institute indicate that, in Colorado, Nevada, Oregon, and Washington, the frequency of collision claims has risen moderately (by 5%-6%) since the start of retail sales of marijuana, compared to neighboring states that have not legalized marijuana.

Driving under the influence of marijuana is illegal in all states—including the 10 that have legalized marijuana use for those over the age of 21 for medical or recreational purposes and the 33 states (and DC) that have approved medical use only. Officials struggle with determining whether drivers are impaired, given the lack of a clear correlation between use of the drug and impairment. Outside of a few industry-sponsored studies, the insurance segment has yet to take significant, definitive action in determining how to deal with the rising risks associated with marijuana use. Differences in federal and state statutes help complicate matters as well. Insurance companies and trade associations are currently seeking a better collection of data on impairment, accidents, and enforcement actions to help devise appropriate strategic approaches to the issues wrought by legalization.

Exhibit 12Fatal Crashes Affected by Distracted Drivers, 2016

Crashes Drivers Fatalities

Distraction-affected Fatal Crashes Number of Distracted-Affected Fatal Crashes 3,157 3,210 3,450

Percentage of Total Fatal Crashes 9% 6% 9%

Cellphone-use in Distracted-Affected Fatal Crashes Number of Cellphone Distracted-Affected Fatal Crashes 444 457 486 Percentage of Fatal Distracted-Affected Crashes 14% 14% 14%

Total Fatal Crashes 34,439 51,914 37,461

Source: US Department of Transportation, National Highway Traffic Safety Administration.


Market Segment Report

Published by AM Best

MARKET SEGMENT REPORTA.M. Best Company, Inc.

Oldwick, NJCHAIRMAN, CEO & PRESIDENT Arthur Snyder III

SENIOR VICE PRESIDENTS Alessandra L. Czarnecki, Thomas J. Plummer

A.M. Best Rating Services, Inc.Oldwick, NJ

CHAIRMAN, CEO & PRESIDENT Larry G. MayewskiEXECUTIVE VICE PRESIDENT Matthew C. Mosher

SENIOR MANAGING DIRECTORS Douglas A. Collett, Edward H. Easop, Stefan W. Holzberger, Andrea Keenan, James F. Snee

WORLD HEADQUARTERS1 Ambest Road, Oldwick, NJ 08858

Phone: +1 908 439 2200

APAC REGION – HONG KONG OFFICEUnit 4004 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong

Phone: +852 2827 3400

APAC REGION – SINGAPORE OFFICE6 Battery Road, #39-04, Singapore

Phone: +65 6303 5000

EMEA REGION – AMSTERDAM OFFICENoMA House, Gustav Mahlerlaan 1212

1081 LA Amsterdam, NetherlandsPhone: +31 20 308 5420

EMEA REGION – LONDON OFFICE12 Arthur Street, 6th Floor, London, UK EC4R 9AB

Phone: +44 20 7626 6264

LATAM REGION – MEXICO CITY OFFICEPaseo de la Reforma 412, Piso 23, Mexico City, Mexico

Phone: +52 55 1102 2720

MENA REGION – DUBAI OFFICE*Office 102, Tower 2, Currency House, DIFC

P.O. Box 506617, Dubai, UAEPhone: +971 4375 2780

*Regulated by the DFSA as a Representative Office

Best’s Financial Strength Rating (FSR): an independent opinion of an insurer’s financial strength and ability to meet its ongoing insurance policy and contract obligations. An FSR is not assigned to specific insurance policies or contracts.

Best’s Issuer Credit Rating (ICR): an independent opinion of an entity’s ability to meet its ongoing financial obligations and can be issued on either a long- or short-term basis.

Best’s Issue Credit Rating (IR): an independent opinion of credit quality assigned to issues that gauges the ability to meet the terms of the obligation and can be issued on a long- or short-term basis (obligations with original maturities generally less than one year).

Rating Disclosure: Use and LimitationsA Best’s Credit Rating (BCR) is a forward-looking independent and objective opinion regarding an insurer’s, issuer’s or financial obligation’s relative creditworthiness. The opinion represents a comprehensive analysis consisting of a quantitative and qualitative evaluation of balance sheet strength, operating performance, business profile, and enterprise risk management or, where appropriate, the specific nature and details of a security. Because a BCR is a forward-looking opinion as of the date it is released, it cannot be considered as a fact or guarantee of future credit quality and therefore cannot be described as accurate or inaccurate. A BCR is a relative measure of risk that implies credit quality and is assigned using a scale with a defined population of categories and notches. Entities or obligations assigned the same BCR symbol developed using the same scale, should not be viewed as completely identical in terms of credit quality. Alternatively, they are alike in category (or notches within a category), but given there is a prescribed progression of categories (and notches) used in assigning the ratings of a much larger population of entities or obligations, the categories (notches) cannot mirror the precise subtleties of risk that are inherent within similarly rated entities or obligations. While a BCR reflects the opinion of A.M. Best Rating Services, Inc. (AM Best) of relative creditworthiness, it is not an indicator or predictor of defined impairment or default probability with respect to any specific insurer, issuer or financial obligation. A BCR is not investment advice, nor should it be construed as a consulting or advisory service, as such; it is not intended to be utilized as a recommendation to purchase, hold or terminate any insurance policy, contract, security or any other financial obligation, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. Users of a BCR should not rely on it in making any investment decision; however, if used, the BCR must be considered as only one factor. Users must make their own evaluation of each investment decision. A BCR opinion is provided on an “as is” basis without any expressed or implied warranty. In addition, a BCR may be changed, suspended or withdrawn at any time for any reason at the sole discretion of AM Best.

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