AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit of "a-" of Wright National Flood Insurance Company (WNFIC) (San Antonio, TX). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect WNFIC’s balance sheet strength, which AM Best categorizes as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The balance sheet assessment takes into consideration WNFIC’s risk-adjusted capitalization, strong liquidity levels, the strong financial flexibility and support provided by its ultimate parent, Brown & Brown, Inc. [NYSE: BRO] and the financial support of the United States government, being the largest writer of federal flood insurance in the United States. The company maintains no risk or retention as the business is 100% ceded.
The ratings also reflect WNFIC’s consistent operating profitability and positive cash flows. Unlike traditional insurers, WNFIC is a federal flood insurer whose profits are driven by service fees and ceding commissions from the National Flood Insurance Program (NFIP). WNFIC’s consistent earnings are supported by a profitable NFIP flood model and careful expense management. Over the most recent five-year period, the company has produced a total return on equity that outperforms the commercial property composite. AM Best views WNFIC’s earnings profile as adequate.
Offsetting these positive rating factors are the challenges and risk related to its limited business profile and its heavy dependence on the NFIP, which is critical to its core business. Although a market leader, competitive pressures exist from the private sector and potential changes in flood mapping. While AM Best does not expect any material changes to the NFIP program or potential changes in FEMA’s rules related to the Write Your Own Program, these programs are critical to WNFIC. NFIP is up for reauthorization on Sept. 30, 2020.
AM Best views WNFIC’s management as experienced and highly competent in the field of flood insurance. AM Best also views WNFIC’s ERM practices as appropriate, given its conservative risk culture and defined risk controls, as well as the risk management support provided by Brown & Brown, Inc.
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