A.M. Best Revises Outlook to Negative For Newport Bonding and Surety Company.OLDWICK, N.J. -- A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of B+ (Good) and issuer credit rating of "bbb-" of Newport Bonding and Surety Company (Newport) (Hato Rey, PR) The revised outlook is due to Newport's decline in underwriting performance, which has resulted in a downward trend of operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before and a combined ratio above breakeven breakeven 1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations for three consecutive years. In addition, reductions in surplus have been reported. A.M. Best is concerned that surplus levels will not remain sufficient to support risk-adjusted capital levels. Newport is taking several corrective actions A corrective action is a change implemented to address a weakness identified in a management system. Normally corrective actions are instigated in response to a customer complaint, abnormal levels if internal nonconformity, nonconformities identified during an internal audit or such as utilizing its subrogation The substitution of one person in the place of another with reference to a lawful claim, demand, or right, so that he or she who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or Securities. rights to recover losses that stemmed from prior year surety contracts, as well as non-renewing unprofitable business, and early indications are favorable as 2008 surplus levels have returned to historical norms. The ratings reflect Newport's adequate capitalization and consistent stream of investment income, which have partially mitigated recent underwriting losses, which stemmed from prior year activity. Partially offsetting these positive rating factors are the company's elevated underwriting expenses, geographic concentration and downward trend in operating earnings driven by unfavorable underwriting results. Newport's commission expenses remain elevated, which diminish underwriting profits Underwriting profit is a term used in the insurance industry. It consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held premiums. and therefore capital appreciation. However, the commission costs compare similarly to local peers in Puerto Rico Puerto Rico (pwār`tō rē`kō), island (2005 est. pop. 3,917,000), 3,508 sq mi (9,086 sq km), West Indies, c.1,000 mi (1,610 km) SE of Miami, Fla. , which does not regulate the commercial insurance lines. In addition, with all of its business produced in Puerto Rico, Newport is exposed to judicial, regulatory and economic concerns on the island. For Best's Ratings Best's rating A rating A.M. Best Co. assigns to insurance companies based on the company's ability to meet its obligations to its policyholders. , an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings. Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com. |
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