OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has downgraded the financial strength rating to B- (Fair) from B (Fair) and the issuer credit rating to “bb-“ from “bb” of Unique Insurance Company (Unique) (Chicago, IL). The outlook for both ratings has been revised to negative from stable.
The negative rating actions reflect Unique’s decline in overall risk-adjusted capitalization following substantial growth in the fourth quarter of 2014 and continuing through 2015. Increases in net premiums have significantly outpaced surplus growth resulting in elevated leverage measures that compare unfavorably with other private passenger non-standard automobile writers. Unique’s elevated expense position, driven by commission costs, also contributes negatively to the company’s profitability. In earlier years, capitalization was weakened by a $2 million contribution to assist in starting up a sister company, Stonegate Insurance Company, formed to primarily underwrite higher limit standard auto insurance business in Illinois.
Partially offsetting these negative rating factors are the company’s generally positive operating results. In most years, the company generates favorable net income and positive pre-tax and total returns on revenue and equity. The company’s average pure loss ratio compares favorably with the industry composite. While premium growth is outpacing surplus growth, Unique has been able to add to surplus each year with the exception of 2011. This is mainly due to a combination of investment income and fee income that offset the overall underwriting losses of the last five years and resulted in a five-year average total return on equity in the double digits.
Negative pressure on the ratings will persist if risk-adjusted capitalization continues to deteriorate or if operating performance begins to decline. Any future positive action will require improvement in risk-adjusted capitalization and underwriting leverage measures while maintaining favorable operating performance.
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
- Evaluating U.S. Surplus Notes
- 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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