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 its balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
OUC’s strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and strong operating performance, are underpinned by the company’s consistent profitable underwriting results, supplemented by healthy investment income generated by the company’s investment portfolio. Additionally, the company benefits 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.
The ratings of OUL reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its marginal operating performance, limited business profile and appropriate ERM.
OUL’s strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and high levels of liquidity are offset by the company’s marginal operating performance, which includes modest but positive operating earnings and declining sales trends as consumer preferences have shifted away from credit life and credit accident and health products to vehicle service contracts, such as those sold by OUC. OUL also benefits from its affiliation with Berkshire and the same affiliated automotive dealerships as OUC.
A.M. Best views OUC’s and OUL’s business profiles as limited. Auto warranty represents over 90% of OUC’s business, with substantial geographical concentration. OUL’s credit life and credit accident and health products also are focused in the automotive market and concentrated in Michigan, Texas and Arizona. Since auto sales are highly correlated to the overall U.S. economy, a downturn in the industry may negatively impact each company’s business.
ERM is considered to be developed and appropriate for both companies’ risk profile and business mix.
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