AM Best goes negative on Ategrity’s A- rating over UW volatility

AM Best has revised the outlook to negative on Ategrity Specialty Insurance Company (ASIC)’s A- financial strength rating, citing concern over recent underwriting volatility resulting from outsized catastrophe losses.

AM Best today revised the outlooks to negative from stable on the financial strength rating of A- (Excellent) and the long-term issuer credit ratings (ICRs) of “a-” (Excellent) of ASIC and its affiliate, Sequentis Re.

The ratings agency also revised the outlook to negative from stable and affirmed the long-term ICR of “bbb-” (Good) of holding company Ategrity Specialty Holdings.

Ategrity was launched in September 2018 by Mike Miller, who serves as both executive chairman and CEO. Miller is a former Scottsdale Insurance Company president.

“The revision of the outlooks to negative reflects AM Best’s concern over recent underwriting volatility, which has resulted in pressure on the company’s operating performance and ERM fundamentals,” the ratings agency said.

It added: “While the company has made recent changes in senior management and is in the midst of executing a strategy with less inherent volatility, these changes still need to prove beneficial to the group’s underwriting performance in the intermediate term.”

This publication revealed in September that Ategrity and its chief underwriting officer of brokerage business John Goodloe had parted ways.

That same month Ategrity secured a $75mn capital raise from Sequentis Financial. Ategrity’s initial $125mn funding at launch came through hedge fund Zimmer Partners, an operating company of Sequentis.

AM Best commented that Ategrity, which is in its third year of operation, has grown more than originally projected.

“Although capital levels have kept pace with the increased premium, the group has been subject to outsized catastrophe losses linked to their property exposure,” it said.

The ratings agency added: “Prospective operating profitability is dependent on management’s ability to execute a revised business plan with a greater focus on lines of business with reduced catastrophe exposure and less inherent volatility.”

US operating subsidiary ASIC began writing excess and surplus lines of business in the fourth quarter of 2018.

AM Best considers the group’s business profile as limited given its start-up status and shifting business plans, although it noted management has strong existing industry relationships.

“The company is making enhancements to its ERM program, which are expected to lead to greater stability in its underwriting results,” the ratings agency said.

Negative rating action could occur if Ategrity fails to improve its underwriting track record over the next cycle and falls short of projected performance, AM Best warned.

Continued significant underwriting volatility could also result in negative rating pressure on the assessment of the group’s ability to manage its risk exposures.

According to 2020 statutory filings, ASIC’s direct written premiums were $208mn, up from $95mn in 2019. DWP in the first half of 2021 was $111mn.

At the time of the capital raise in September, Miller said the company had done an “extraordinary job” building its presence since its 2018 launch.

“It is now time to marry our existing strengths with new investments in data and analytics that will position our company for its next phase of growth,” he said.