AM Best has assigned a financial strength rating of ‘A-’ (Excellent) and a long-term issuer credit rating of ‘a-’ (Excellent) to Triple Crown Assurance (TCA), a Texas-based captive insurance company wholly owned by Southwest Airlines.
The outlook assigned to these credit ratings is ‘stable’.
The ratings reflect TCA’s balance sheet strength, which AM Best evaluates as very strong, as well as its adequate operating performance, limited business profile, and appropriate enterprise risk management.
TCA’s level of risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio, is assessed at the strongest level, where AM Best expects it to remain in future years.
The balance sheet strength assessment also considers the company’s conservative investment strategy, adequate liquidity measures, and favourable loss reserve development over the last few years.
However, this is partially offset by the captive’s elevated exposure to credit risk relative to its reinsurance treaties, as well as its higher-than-average underwriting leverage metrics.
Furthermore, TCA’s operating performance reflects the inherent benefits of being a captive insurer, as it has minimal acquisition costs and administrative expenses, driving its favourable expense ratio.
The business profile is assessed as limited, as a single-parent captive established to provide various insurance coverages for its parents, including workers’ compensation, employers’ liability, medical expense cost containment, terrorism, aviation, hail, and hull and liability risk coverages.