OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has downgraded the issuer credit rating (ICR) to “bbb” from “bbb+” and affirmed the financial strength rating (FSR) of B++ (Good) of National Unity Insurance Company (National Unity) (San Antonio, TX). The outlook for both ratings has been revised to negative from stable.
The negative rating actions reflect National Unity’s lower risk-adjusted capitalization in conjunction with its increased underwriting leverage and deteriorated underwriting performance in recent years. This is due primarily to National Unity’s aggressive premium growth in its domestic non-standard automobile liability product in recent years, which resulted in increased overall liabilities; higher loss and loss-adjusted expenses; and lower underwriting profit margin. Most recently, National Unity’s underwriting results and reserve development on both an accident- and calendar-year basis have been unfavorable. In an effort to improve overall results, management is taking aggressive rate increases, decreasing commissions and de-emphasizing its domestic non-standard automobile product.
These negative rating factors are partially offset by National Unity’s historical pattern of surplus growth as well as its favorable operating performance trend despite increased exposure in recent years. National Unity has reported pre-tax operating income in each of the past five years, primarily driven by generally positive net underwriting income and a steady stream of solid net investment income, which have also enabled the company to generate positive net income during the period.
National Unity is a market leader in providing short-term (1-14 days) auto liability coverage to non-resident Mexican tourists driving in the United States. Management’s comprehensive knowledge of Mexico’s insurance market and its strong relationship with local producers contribute to its favorable operating results. However, the rapid expansion in domestic non-standard auto business has not materialized as projected and has produced significantly more losses than the non-resident policies.
The ratings may be downgraded if National Unity’s risk-adjusted capitalization continues to decline or if its operating performance deteriorates. Removal of the negative outlook is contingent upon National Unity’s ability to reverse its adverse underwriting results to its historic level and continue with favorable operating performance and surplus growth while improving overall capitalization and underwriting leverages.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Catastrophe Analysis in A.M. Best Ratings
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for Property/Casualty Insurers
This press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best’s Ratings & Criteria Center.
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