AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of American Inter-Fidelity Exchange (AIFE) (Merrillville, IN).

The Credit Ratings (ratings) reflect AIFE’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).

The outlooks revised to positive reflect AIFE’s strong organic surplus growth that has taken place over the previous five-year period, further enhancing its very strong balance sheet strength assessment. The improvement is largely the result of the exchange’s declining tail exposure as, beginning in 2018, the company embarked on a transition towards a predominantly auto physical damage (APD writer), which management felt would result in greater profitability with less volatility compared to that of a book of business concentrated in commercial auto liability (CAL). The shift has led to consistent levels of favorable reserve development over the most recent five-year period as CAL exposures run off. Since implementing its new underwriting strategy, overall profitability has improved dramatically and has consistently contributed to AIFE’s surplus growth.

In addition to its strongest risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), the company also maintains a strong operating performance assessment, especially in its underwriting results, consistently generating combined ratios favorable to peers in the commercial auto segment. The business profile remains limited mainly because of AIFE’s heavy product concentration in the commercial auto lines, and due to the very small, niche market that the company serves. AM Best considers the company’s ERM program to be appropriate for the size and scope of its operation.

Positive rating action could occur in the near term if improvements in AIFE’S financial condition and risk-adjusted capitalization appear sustainable with continuing organic surplus growth through strong underwriting results and ongoing reserve adequacy. Negative rating action could occur if claims frequency and severity materially increase following the substantial growth in premiums in recent years and leads to a weakening of the company's strong operating performance.

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