AM Best has upgraded the long-term issuer credit rating to “bbb+” (good) from “bbb” (Good) and affirmed the financial strength rating of B++ (good) of Texas-domiciled Zale Indemnity Company (ZIC).
ZIC is a captive owned by Signet Jewelers, the world’s largest retailer of diamond jewellery, and provides third-party credit insurance and warranty cover to customers of its affiliated retailers.
Management has affirmed ZIC’s value to the organisation’s growth as ZIC provides a strategic alignment in offering CLIPs on extended warranty agreements in States that require them by law.
The operations for ZIC as a contractual liability insurance policy (CLIP) provider limits its underwriting risk, along with limited surplus growth.
The upgrade in ZIC’s operating performance to adequate from marginal is supported by management’s decision to retain its operations as a CLIP.
The outlook of the long-term ICR has been revised to stable from positive, while the outlook of the FSR is stable.
The credit ratings reflect ZIC’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
ZIC’s revenue comes from fee income associated with its CLIP business, which diminishes underwriting risk for the captive.
The upgrade is further supported by ZIC’s operating performance metrics as both the combined and operating ratios improved significantly over the most recent five-year period.
ZIC’s ratings reflect its solid level of risk-adjusted capitalisation, as measured by Best’s capital
adequacy ratio (BCAR), strong liquidity and the high credit quality of its investment portfolio.
Offsetting rating factors include a limited business profile and limited organic capital growth due to the small size and scope of its operations.