The rating agency A.M. Best Co. affirmed the financial strength rating of A (Excellent) and issuer credit rating of "a+" of AMEX Assurance Company, an operating subsidiary of American Express Co. or AmEx AXP.
The rating affirmations came on the back of AMEX Assurance's solid capital positioning owing to its risk-averse nature toward investing. In addition, income from the sale of insurance-related products to AmEx cardholders over the past five years bears testimony to the company’s operating efficiency and consistent growth.
Moreover, AMEX Assurance's proficiency in restricting expenditures and direct marketing strategies along with its focus on certain travel-related and ancillary insurance policies has contributed largely to margin expansion.
Amex has been able to maintain a strong capital position led by its conservative investment risk profile, history of favorable reserve development and impressive operating results driven by solid profit margins.
However, there are quite a few factors working against the company. All AMEX Assurance businesses are targeted toward AmEx cardholders, and given the sluggish growth in policyholders' surplus in the last 5 years there is not much upside left for the subsidiary. Also, the company has very little reserve as most of it has been used over the years on paying out dividends.
The outlook for the ratings remains stable, implying that the ratings would not witness any change in either the upward or downward direction in the near term.
There is no clear indication that the ratings agency is contemplating an increase in the current ratings. However, a negative rating action would follow if the company suffers a decline in premium writings caused by any billing system issue or heightened competition in the payments industry. Other external events such as a global economic downturn or any terrorist event might impact the company’s profitability and lead to a negative rating action.
AmEx carries a Zacks Rank #3 (Hold). Some better-ranked players in the space are Blackhawk Network Holdings, Inc. HAWK, Consumer Portfolio Services, Inc. CPSS and Moneygram International Inc. MGI. Each of these stocks carries a Zacks Rank #2 (Buy).
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