OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “b+” from “b” and affirmed the Financial Strength Rating (FSR) of C++ (Marginal) of First Chicago Insurance Company (FCIC). The outlook of the FSR has been revised to positive from stable, while the Long-Term ICR remains positive. Concurrently, A.M. Best has upgraded the FSR to C (Weak) from C- (Weak) and the Long-Term ICR to “ccc” from “cc” of United Security Health and Casualty Company (USH&C), a wholly owned subsidiary of FCIC. The outlook for the Long-Term ICR rating has been revised to positive from stable, while the outlook for the FSR remains stable. Both companies are domiciled in Bedford Park, IL.
The Credit Ratings (ratings) of FCIC reflect its balance sheet strength, which A.M. Best categorizes as weak, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.
The rating upgrades reflect the FCIC’s improved operating performance, based on the consolidated financial results of the two companies, which has resulted in favorable pre-tax operating gains, positive net income and surplus increases for five consecutive years. These favorable operating metrics mainly are due to a consistent stream of net investment income, other fee income, and to a lesser extent, improved underwriting results. As a result, the FCIC’s five-year average combined and operating ratios outperform the private passenger non-standard automobile composite. The positive outlook on FCIC’s ratings anticipates the company’s continued favorable operating performance and improved overall risk-adjusted capitalization.
Partially offsetting these positive rating factors is the FCIC’s significantly elevated underwriting leverage and expense ratios, which compare unfavorably with the composite. Despite adding to surplus for five consecutive years, FCIC continues to grow its direct and net premiums written. As a result, its net and gross underwriting leverage ratios remain well above the composite averages. In addition, elevated underwriting expenses driven by commissions and other expenses dampen overall profitability. Furthermore, FCIC has a geographic concentration of risk, as nearly 86% of direct premium written is in two states, Illinois and Indiana, and a narrow product offering as 89% of direct premium written in three lines of business: private passenger auto liability, commercial auto and auto physical damage.
The ratings of USH&C reflect its balance sheet strength, which A.M. Best categorizes as weak, as well as its weak operating performance, very limited business profile and marginal enterprise risk management. These assessments reflect the company slowly transitioning from a life/health entity to a health and property/casualty entity.
These rating upgrades mainly reflect an additional capital contribution of $2.5 million made in 2017.
Partially offsetting this positive rating factor is the inherent execution risk in management’s ability to execute successfully the business plan to a property/casualty writer. This execution risk is somewhat mitigated as the management of FCIC, USH&C’s parent company, is experienced and has a history of operating in the property/casualty industry. The positive outlook on the Long-Term ICR is based on A.M. Best’s expectation that the company will meet its projections for premium growth and operating profitability in 2018.
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. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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