OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has downgraded the financial strength rating (FSR) to C (Weak) from C++ (Marginal) and the issuer credit rating to “ccc+” from “b” of United Security Assurance Company of Pennsylvania (United Security) (Souderton, PA). Following these actions, the ratings remain under review with negative implications.
The rating action follows A.M. Best’s review of United Security’s recently filed Sept. 30, 2015 statutory statement which reflects a continued material decline in reported capitalization. A.M. Best notes that capital and surplus for the company has declined by 120% since year-end 2014, driven primarily by operating losses due to unfavorable claims experience within certain blocks of acquired long-term care (LTC) business. This experience resulted from increases in paid claims and claims reserves and is consistent with recently published industry data regarding claims experience and incidence rates of older-aged policyholders.
United Security’s ratings were initially placed under review in December of 2014, when the company reported a substantial decline in capitalization, due to operating losses tied to the unfavorable performance of its LTC business. The company’s ICR was downgraded in August of 2015, reflecting further deterioration of capital and surplus reported in the company’s statutory filing dated June 30, 2015. The downgrade of the ICR and FSR reflects continued weakening of capital and surplus levels as a result of the company’s concentrated business profile in the LTC market. United Security continues to actively pursue rate increases, in an attempt to offset losses; however, A.M. Best believes these actions will take time to have a meaningful impact on future operating results. Additionally, the organization’s financial flexibility has been hindered by substantial financial leverage at its parent, CMS Financial Services Corp.
United Security’s management has indicated that the company has executed a term sheet with a reinsurer for a coinsurance arrangement to enhance risk-adjusted capitalization and is working to obtain regulatory approval to close the transaction before the end of 2015. However, A.M. Best believes that given United Security’s adverse underwriting results in its acquired LTC blocks, it will continue to be challenged to reverse declining capital and surplus trends and materially improve risk-adjusted capitalization if a plan is not fully executed prior to year-end 2015. A.M. Best expects to continue regular discussions with United Security's management to review its efforts to improve its capitalization, after which A.M. Best expects to resolve the under review status.
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