OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has assigned a Financial Strength Rating of C- (Weak) and a Long-Term Issuer Credit Rating (Long-Term ICR) of “ccc-” to United Security Assurance Company of Pennsylvania (United Security) (Souderton, PA). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect United Security’s balance sheet strength, which A.M. Best categorizes as very weak, as well as its marginal operating performance, very limited business profile and weak enterprise risk management.
The ratings partially reflect the company’s execution of an agreement with a reinsurer for a coinsurance arrangement, which has significantly enhanced United Security’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). However, there are several offsetting negative factors driving its very weak balance sheet strength. United Security is heavily dependent on its reinsurance partnerships. Furthermore, the primary reinsurer is an unauthorized and unrated entity, posing counterparty risk. In addition, the holding company remains highly leverage and has reported a negative shareholder’s equity position, limiting the organization’s financial flexibility and further weakening the organization’s overall balance sheet strength. A.M. Best notes that United Security is using external consultants to support its investment and actuarial functions in an effort to bolster future investment return, pricing and reserving practices.
Additionally, as part of the aforementioned reinsurance transaction, United Security’s invested asset base decreased considerably, from over $150 million to over $20 million, which negatively impacted its net investment income in 2016 and 2017. While the company has reported profitability over these two years - despite continued underwriting losses - the 2016 results and related capital increase during that year were significantly driven by the one-time impact of the reinsurance transaction.
The vast majority of the company’s inforce premium have been related historically to its long-term care (LTC) business, concentrated in a small number of states. The company continues to write LTC business but also is shifting its focus to supplemental health, focused on short-term care products, which is a comparatively less risky line of business.
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