AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of B- (Fair) and the Long-Term Issuer Credit Rating of “bb-” (Fair) of Tower Bonding & Surety Company (Tower Bonding) (San Juan, PR).
These Credit Ratings (ratings) reflect Tower Bonding’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).
The revision of the outlooks to positive reflects the sustained, but somewhat variable, improvement in Tower Bonding’s operating profitability in recent years with this trend continuing through the first half of 2023. Tower Bonding has reported favorable net underwriting income and pre-tax operating results over the past five years. The combined and operating ratios are elevated in comparison with the AM Best composite average; however, the composite is skewed by large national surety writers. The company’s elevated expense ratio is driven by a high commission and its other expense structure.
Tower Bonding’s balance sheet strength metrics have also improved as the result of increased profitability, which has driven the growth in policyholder surplus. The company’s business profile assessment is driven by a geographic concentration of risk and limited product diversification as it writes bail bonds in Puerto Rico, a market with challenging macroeconomic conditions. However, Tower Bonding has minimal competition.
The company’s ERM is assessed as marginal given its limited capabilities relative to its risk profile.
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