AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of National Guaranty Insurance Company of Vermont (NGIC) (Burlington, VT). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect NGIC’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.

The ratings support NGIC’s role as a captive insurance company of Waste Management, Inc. (WM) [NYSE: WM], one of the leading provider of comprehensive waste management environmental services in North America. The captive benefits from the parental support and robust risk management strategies afforded to it from WM as important factors of the NGIC’s overall financial assurance program. Active risk management has benefited capitalization through loss prevention to generate consistently positive earnings.

Partially offsetting these factors is the large percentage of policyholder surplus loaned back to WM in the form of a 24-hour demand note, which has caused liquidity measures to underperform its peers. This factor is mitigated by WM’s balance sheet size and operating cash flow, which could readily fulfill the loan obligation if required. Capital levels also are monitored by the Vermont Department of Financial Regulation, which requires the company to maintain a certain aggregate exposure to capital ratio. Additionally, NGIC’s expense ratio compares unfavorably with the surplus lines composite over a five- and 10-year period, due to the nature of the financial assurance line of business and expenses focused on risk mitigation. However, the company has reduced underwriting expenses significantly over the past five years to further benefit operating and net income.

Due to the nature of the relationship between NGIC and WM, changes in WM’s credit risk can have an impact on NGIC’s ratings, as it is dependent on WM’s ability to support its credit risk profile, competitiveness and risk management. The captive continues to be an integral component of WM’s risk management platform. AM Best’s view of third-party credit ratings and market-based credit risk measures of WM indicates stability, resulting in NGIC’s stable outlooks.

Negative rating action could occur if the company’s balance sheet strength deteriorates materially to levels that do not support its risks. Negative rating action also could occur if WM experiences financial distress and deterioration to its credit profile.

AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated in the United States and throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

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