OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of the property/casualty subsidiaries of United Fire Group, Inc. (UFG) [NASDAQ: UFCS] (collectively known as United Fire & Casualty Group), which operate under an inter-company pooling agreement led by United Fire & Casualty Company. Concurrently, A.M. Best has affirmed the ICR of “bbb” of UFG.
At the same time, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of United Life Insurance Company (United Life), a wholly owned subsidiary of UFG. The outlook for all ratings is stable. All companies are headquartered in Cedar Rapids, IA. (See below for a detailed listing of the companies and ratings.)
The ratings of United Fire & Casualty Group reflect its solid risk-adjusted capitalization, diversified commercial product offerings, historically favorable core reserve levels and the financial flexibility afforded by UFG. United Fire& Casualty Group’s ratings also reflect the continued advantages of its long-standing agency relationships and solid regional franchise, which was enhanced by the acquisition of Mercer Insurance Group, Inc. (Mercer) and its property/casualty insurance subsidiaries in March 2011. In addition, underwriting results improved substantially in 2013 as a result of rate revisions, less catastrophic and large loss activity and continued favorable prior year loss reserve development.
These positive rating factors are partially offset by the variability in United Fire & Casualty Group’s underwriting and operating results in recent years, driven by adverse loss reserve development from Hurricane Katrina-related claims (in 2008 and 2009), catastrophe and weather-related losses (in 2011) and the continued challenging, albeit improving, market conditions in the group’s core markets.
The ICR of UFG recognizes the capital strength of its subsidiaries and the fact that it has no outstanding debt.
While A.M. Best believes UFG and United Fire& Casualty Group’s ratings are well positioned at their current rating levels, factors that may lead to negative rating actions include a trend of deteriorating underwriting and operating performance to a level below its peers and/or an erosion of surplus that causes a decline in risk-adjusted capital to a level that no longer supports the current ratings.
The ratings of United Life recognize its strong risk-adjusted capitalization, the high creditworthiness of its invested assets and continuing trend of positive operating results. These positive rating factors are partially offset by United Life’s high concentration of reserves in interest-sensitive products and spread compression as a result of low interest rates and geographic concentration risk, as most of United Life’s business is generated from the Midwestern region. A.M. Best notes that United Life’s business profile is expected to improve through its plans to expand into nine new states due to UFG’s acquisition of Mercer. Additionally, A.M. Best expects that its annuity spreads will gradually improve as multi-year annuities roll off and renew at lower guaranteed rates.
Positive rating movement for United Life may occur if its role and value to the UFG enterprise is enhanced. Factors that may result in negative rating actions include a significant and/or sustained decline in risk-adjusted capitalization, unfavorable trends in operating performance, deterioration in the credit quality and value of its investment portfolio or a change in its strategic role to UFG.
The FSR of A (Excellent) and ICRs of “a” have been affirmed for United Fire & Casualty Company and its following property/casualty subsidiaries:
- Lafayette Insurance Company
- Addison Insurance Company
- United Fire & Indemnity Company
- United Fire Lloyds
- Mercer Insurance Company
- Financial Pacific Insurance Company
- Mercer Insurance Company of New Jersey, Inc.
- Franklin Insurance Company
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.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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