OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” of Universal Insurance Company (PR) (UIC PR) (Guaynabo, PR). The outlook assigned to these Credit Ratings (ratings) is negative. Concurrently, AM Best has removed from under review with negative implications and affirmed the FSR of B++ (Good) and the Long-Term ICR of “bbb+” of Universal North America Insurance Company (UNAIC) (Arlington, TX). The outlook assigned to the FSR is stable, while the outlook of the Long-Term ICR is negative. Furthermore, AM Best has maintained the under review with negative implications status for the FSR of B+ (Good) and the Long-Term ICR of “bbb-” of Universal Life Insurance Company (San Juan, PR) (Universal Life).
The rating actions taken on the property/casualty operations of Universal Group, Inc. are based on AM Best’s concerns regarding the significant uncertainty at the enterprise level, driven by the issues stated below at Universal Life. Therefore, until the successful resolution of these concerns, AM Best believes reputational risk exists for the entire organization, which could create a diminished view of the enterprise’s business profile.
The ratings of UIC PR reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management (ERM).
The ratings of UNAIC reflect its balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, neutral business profile and marginal ERM. The ratings further reflect the enhancement given its role within the group.
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 ERM. The credit ratings are based on the elevated counterparty risk associated with Universal Life’s fixed annuity business reinsured through its ceding agreement with Private Bankers Life & Annuity Co., Ltd. (PBLA). The elevated counterparty risk is attributed directly to the fixed annuity assets maintained by PBLA. PBLA is a Bermuda-domiciled company with direct ties to Greg E. Lindberg, who was recently found guilty of wire fraud and bribery charges by a federal jury in Charlotte, NC. These assets are being valuated by a third-party adviser including certain securities linked to operating companies affiliated with global growth. These fixed annuity assets are held in a trust, and any investment transactions require Bermuda Monetary Authority’s and Universal Life’s approval prior to execution. Furthermore, Universal Life has made progress toward control of the trust assets; however, PBLA remains under ultimate ownership of Lindberg and may be so for an unknown period of time. Universal Group, Inc. is exploring a capital raise, which if successful will provide additional capital to support Universal Life to strengthen its risk-adjusted capitalization. Additionally, Universal Life has a signed a letter of intent from a reinsurer to replace PBLA and assume the in-force fixed annuities, although an executed reinsurance agreement awaits the conclusion of the asset monetization plan. Even though the process continues, it has taken longer than expected.
Universal Life’s operations are sound, and in 2019 reported net statutory earnings of $38.9 million, a 16% increase over 2018. The company reported return-on-equity measures in excess of 30% for the past five years, and capital has grown 26.2% compounded annually over the same period. Universal Life is exposed to concentration risk as it solely operates in Puerto Rico; however, it is part of UIC PR’s diversified product strategy and has the largest share of the annuity business in the market.
The ratings of Universal Life will remain under review with negative implications, pending completion of Universal Group, Inc.’s capital raise. AM Best expects the capital raise to be completed within the next 90 days. Additionally, AM Best will continue to have ongoing discussions with Universal Life’s management team regarding the movement of its in-force fixed annuity business to a new reinsurer.
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