OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Ratings (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a+” of Old United Casualty Company (OUC) and Old United Life Insurance Company (OUL). The outlook of these Credit Ratings (ratings) is stable. Both companies are headquartered in Shawnee Mission, KS.
The ratings of OUC reflect the company’s solid capitalization, profitable underwriting results, good business profile and adequate enterprise risk management. These positive rating factors are partially offset by elevated unearned premium reserve leverage due to long-duration vehicle service contracts. The outlooks for OUC are based on A.M. Best’s expectation for continued strong core underwriting results and a level of risk-adjusted capital that remains supportive of the current ratings.
The positive rating factors are derived from OUC’s favorable pre-tax operating returns, conservative balance sheet and the synergies gained from being affiliated with Berkshire Hathaway, Inc. (Berkshire), its ultimate parent. OUC specializes in providing vehicle service contracts, primarily to affiliated automobile dealerships that are owned by Berkshire Hathaway Automotive. Through this relationship, OUC benefits from the marketing and distribution platforms provided by these dealerships. Consistent with other automobile warranty writers, loss reserve leverage measures are not material, as the bulk of liabilities and risks reside in the unearned premium reserve that is held to fund latent warranty claims as they develop. However, as a result of the multi-year earning pattern of extended warranties, the unearned premium reserve is elevated.
Positive rating actions could occur with an increase in implicit or explicit support by its parent. As consumer purchases of automobiles are a strong indicator of OUC’s business, either a downturn in the industry, or conversely, a sudden and significant increase in volume resulting from additional car dealerships purchased by Berkshire may negatively impact the company’s ratings.
The ratings of OUL reflect A.M. Best’s view of its fully integrated role within the Old United Group, its ability to market credit insurance product offerings and the collaboration gained by common management, marketing platforms and shared services. OUL has strong risk-adjusted capitalization, a positively trending operating profile and maintains high levels of liquidity to meet its short-term obligations. Offsetting rating factors include the company’s modest operating earnings and a business profile that historically has been limited given its concentration in credit life and credit accident and health products.
While A.M. Best believes OUL is well-positioned at its current rating level, positive rating actions could occur if potential synergies or expansion of its business profile are realized through its affiliation with Berkshire. Negative rating actions could occur if OUL’s risk-adjusted capitalization or operating performance falls markedly short of A.M. Best’s expectations. Additionally, negative rating pressure also could occur if OUL’s business profile or strategic importance to the group declines materially, or if a negative rating action is taken on OUC.
This press release relates to Credit Ratings 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 see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.