OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” from “a-” of Universal Life Insurance Company (Hato Rey, PR) (Universal Life). Concurrently, AM Best has downgraded the FSR to A- (Excellent) from A (Excellent) and the Long-Term ICR to “a-” from “a” of Universal Insurance Company (PR) (UIC) (Guaynabo, PR). In addition, AM Best has downgraded the FSR to B++ (Good) from A- (Excellent) and the Long-Term ICR to “bbb+” from “a-” of Universal North America Insurance Company (UNAIC) (Arlington, TX). All Credit Ratings (ratings) were placed under review with negative implications.
The ratings of Universal Life reflect its balance sheet strength, which AM Best categorizes as adequate, as well as its strong operating performance, limited business profile and marginal enterprise risk management (ERM).
The rating actions on Universal Life — the life and annuity operations of Universal Group, Inc. (Universal), the ultimate parent — are based on a downward revision in AM Best’s balance sheet strength assessment to adequate from very strong, and its ERM assessment to marginal from appropriate. This is attributable to Universal Life’s reinsurance agreement with Private Bankers Life & Annuity Co. Ltd (PBLA) (Bermuda). The ultimate controlling shareholder of PBLA is Greg E. Lindberg, who was indicted in a federal investigation related to charges of wire fraud. PBLA is Universal Life’s reinsurer, covering the fixed annuity reserves. A reserve credit trust holds the annuity reserves. AM Best has concerns with the quality of the trust assets given the issues with the PBLA organization and Universal Life’s ability to find a replacement reinsurer and/or recapture the fixed annuity block. Universal Life’s relationships with its other reinsurers are unaffected. Furthermore, Universal Life established its relationship with PBLA in 2017 following issues at its prior reinsurer. While AM Best acknowledges that Universal Life has taken a number of steps to mitigate any disruption to its operations, including its efforts to find replacement reinsurance, any shortfall in its plan to rectify its reinsurance strategy to recapture or replace this counterparty may result in further rating actions.
The ratings of UIC reflect its balance sheet strength, which AM Best classifies as very strong, adequate operating performance, neutral business profile and marginal ERM. The ratings of UNAIC reflect its strong balance sheet strength, adequate operating performance, neutral business profile and marginal ERM. UNAIC’s ratings further reflect the enhancement given its role within the organization.
The rating actions on UIC and UNAIC, Universal’s property/casualty operations, reflect a revision in AM Best’s assessment of the organization’s ERM program to marginal from appropriate. The revision is based on demonstrated weakness in the organization’s ERM program as it applies to risks associated with Universal Life, UIC’s wholly owned subsidiary.
The under review with negative implications status reflects uncertainty regarding the ultimate effectiveness of the companies’ various initiatives. Any material change in the value of Universal Life may negatively impact AM Best’s assessment of UIC’s balance sheet strength. Should that happen, UNAIC’s current assessment of rating enhancement then could come under pressure. AM Best will continue to monitor the organization’s progress. The ratings will remain under review pending completion of the various initiatives, as well as AM Best’s analysis of their effectiveness.
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