Market Overview

A.M. Best Affirms Ratings of First Net Insurance Company


A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb+” of First Net Insurance Company (First Net) (Guam). The outlook for both ratings is stable.

The ratings reflect First Net's solid risk-adjusted capitalization arising from management's commitment to enhance its capitalization level and mitigate its catastrophe exposures. The ratings also acknowledge First Net's prudent underwriting practice.

First Net's capital and surplus has recorded healthy growth in the past five years as a result of the company's favorable operating performance, an additional capital injection, as well as a zero dividend payout during that period. With a diversified underwriting book of good quality, First Net's claims experience has consistently outperformed its peers, reflecting management's prudence in selecting and pricing risks. To further protect the company's reported surplus from any adverse movement due to catastrophes, First Net has significantly increased the coverage of its catastrophe reinsurance program in recent years. Due to management's efforts, First Net's risk-adjusted capitalization is solid and expected to remain supportive of its ratings in the near term.

Partially offsetting rating factors include First Net's high expense ratio as well as its inherent exposures to natural catastrophe perils.

Although First Net's expense ratio slightly trended downward in the past two years, it still far exceeded the industry average. The high expense ratio is mainly driven by the large amount of commissions paid to its affiliate, Moylan's Insurance Underwriters, Inc., which is First Net's general agent and performs various operational functions for First Net. The relatively small underwriting portfolio also contributes to the high expense ratio. First Net has a narrow spread of risk given its business concentration in Guam, where it is prone to potential catastrophe perils. The company relies heavily on its reinsurance program to protect itself from sizable catastrophe losses.

Future positive rating actions could occur if First Net is able to strengthen its business profile and lower its expense ratio while maintaining its favorable claims experience and solid risk-based capitalization.

Conversely, downward rating actions could occur if there is a significant deterioration in its operating performance or a material decline in its risk-based capitalization level.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Catastrophe Analysis in A.M. Best Ratings”; “Evaluating Country Risk”; and “Understanding BCAR for Property/Casualty Insurers.” Best's Credit Rating Methodology can be found at

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.
Yanwei You
Associate Financial Analyst
Jeff Yeung
Senior Financial Analyst
Rachelle Morrow
Senior Manager, Public Relations
+(1) 908 439 2200, ext. 5378
Jim Peavy
Assistant Vice President, Public Relations
+(1) 908 439 2200, ext. 5644

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