OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has upgraded the financial strength rating to B++ (Good) from B+ (Good) and the issuer credit rating to “bbb” from “bbb-” of Pacific Indemnity Insurance Company (PI) (Guam). The outlook has been revised to stable from positive.

The ratings reflect PI’s solid risk-adjusted capitalization, continued improvement in operating results and prudent investment strategy. The ratings also consider management's commitment to cautious underwriting practices and pricing fundamentals. Offsetting factors include the company’s geographic concentration of risk in Guam and relatively high expense ratio as a result of the moderate book size.

PI’s management team has taken a prudent approach in managing the catastrophe exposure carried by the company and hence improved operating performance through cautious underwriting controls as well as extensive reinsurance programs. In addition, management is diligent in ensuring that all risks insured are properly priced to produce profitable results. As a result, the company has in the past few years terminated business that has proven to be unprofitable. Therefore, with the improvement in underwriting profitability and stable investment results, PI experienced excellent operating performance in the past two years. PI’s surplus as well as risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio, further enhanced in 2008 as a result of the retained excellent operating earnings.

PI generates its business primarily from the domestic insurance market, which is subject to natural catastrophe perils. Given the size of the company’s insurance book and its exposure in Guam, A.M. Best remains cautious about the potential fluctuation in underwriting profitability going forward. Nonetheless, in view of the planned business growth, PI is expected to maintain a favorable risk-adjusted capitalization to support the risks underwritten. In addition, the company continues to maintain an underwriting expense ratio that is in excess of the industry composite. However, the elevated expense ratio is primarily driven by high commission costs paid to the company’s affiliated agency, which performs many of PI’s operational functions.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.