A.M. Best Revises Outlook to Stable for Universal North America Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit rating (ICR) of “a-” of Universal North America Insurance Company (UNAIC) (San Antonio, TX).

“Risk Management and the Rating Process for Insurance Companies”

Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICR of “a” of Universal Insurance Company (UIC) (Guaynabo, PR). In addition, A.M. Best has affirmed the FSR of B++ (Good) and ICR of “bbb+” of Universal Life Insurance Company (ULIC) (Hato Rey, PR), which is a wholly owned subsidiary of Universal Group, Inc. (UGI). The outlook for all ratings is stable.

The affirmation of UIC’s ratings reflects its solid operating performance, strong capitalization and established presence within Puerto Rico. These positive rating factors reflect UIC’s sustained underwriting profitability, which has benefited from favorable reserve development given management’s prudent risk selection, and solid investment income. As a result, surplus growth and overall risk-adjusted capitalization has benefited from organic growth in capital through earnings over the recent five-year period.

Partially offsetting these positive factors is UIC’s geographic risk concentration, exposure to natural catastrophes and the potential impact that weather-related losses could have on operating results and overall capitalization. Despite these concerns, the outlook reflects A.M. Best’s expectation that strong operating earnings over the near term will result in additional growth in policyholder surplus.

The affirmation of UNAIC’s ratings recognizes its supportive capitalization, sound business plan and experienced management team. The ratings also recognize the financial support provided through ongoing capital contributions by its ultimate parent, UGI, totaling $51.1 million during the recent five-year period to maintain risk-adjusted capitalization at levels supportive of current operations and future growth initiatives.

Partially offsetting these positive factors is UNAIC’s variable operating performance, the inherent risks associated with integrating new business acquired through renewal rights and agency relationships on existing books of business, as well as the strain this growth places on risk-adjusted capitalization to support the business. Additionally, UNAIC’s operating performance will be challenged by marketplace competition in both its current and expansion states while remaining exposed to the potential for natural catastrophe losses. However, these concerns are somewhat mitigated by the company’s sound reinsurance program, which reduces the impact of both aggregate and shock losses on UNAIC’s capital position. Notwithstanding, the stable outlook acknowledges the company’s improved operating performance in recent years and the expectation that overall capitalization will support additional premium growth reflective of both profitable earnings and contributed capital.

The affirmation of the ratings reflects ULIC’s favorable operating performance, an implied financial support of UGI and its adequate level of risk-adjusted capitalization. Partially offsetting these strengths is ULIC’s high product concentration risk associated with growth in its fixed and variable annuities.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Understanding BCAR for Life and Health Insurers”; “A.M. Best’s Ratings & the Treatment of Debt”; “Equity Credit for Hybrid Securities”; and “Natural Catastrophe Stress Test Methodology.” Methodologies can be found at www.ambest.com/ratings/methodology.

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