OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” (Good) from “bbb+” (Good) and affirmed the Financial Strength Rating (FSR) of B++ (Good) of Universal North America Insurance Company (UNAIC) (Arlington, TX). The outlook of the FSR has been revised to negative from stable while the outlook for the Long-Term ICR is negative.
Concurrently, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of Universal Insurance Company (PR) (UIC PR). At the same time, AM Best also has affirmed the FSR of B+ (Good) and the Long-Term ICR of “bbb-” (Good) of Universal Life Insurance Company (ULICO). The outlook of these Credit Ratings (ratings) is negative. UIC PR and ULICO are domiciled in Guaynabo, PR.
The ratings of UNAIC reflect its balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, neutral business profile, marginal enterprise risk management (ERM) and rating enhancement from the parent company, UIC PR.
The rating downgrade of UNAIC reflects significant volatility in underwriting performance, which has resulted in operating performance that no longer supports the adequate assessment. UNAIC’s underwriting performance has been unfavorably impacted by elevated weather activity. While the company has implemented initiatives to improve performance such as rate increases, more aggressive agency management, enhancement of underwriting guidelines and refinements to underwriting criteria, results remain volatile.
The revision of UNAIC’s FSR outlook to negative reflects AM Best’s concern regarding the company’s ongoing volatile operating performance and the potential for a change in the current business profile assessment given the ongoing exposure to weather-related events. In addition, the negative rating outlooks are based on potential concern regarding the uncertainty at the enterprise level, driven by issues at an affiliated life company and the ensuing enterprise-wide view of the organization’s reputational risk.
The ratings of UIC PR reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and marginal ERM.
UIC PR’s balance sheet strength is supported by its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), stable loss reserving trends, prudent investment portfolio and solid liquidity measures that are enhanced by generally positive operating cash flows. Partially offsetting these positive factors are UIC PR’s high ceded leverage and ongoing parent company dividend obligation. The company has produced solid operating earnings over the long-term, primarily driven by strong investment earnings, and other income along with variable but improving underwriting results. UIC PR’s business profile reflects the company’s leading market position in Puerto Rico’s personal auto segment.
UIC PR’s negative outlooks are based on concern regarding the uncertainty at the enterprise level, driven by the counterparty risk issue at ULICO. Until the successful resolution of these issues, AM Best believes reputational risk exists for the organization.
The ratings of ULICO reflect its balance sheet strength, which AM Best assesses as adequate, as well as its strong operating performance, limited business profile and marginal ERM.
ULICO’s outlooks remain negative and reflect continued uncertainty regarding the valuation of assets held in a trust for ULICO’s benefit, which are backing a significant block of fixed annuities reinsured with Private Bankers Life & Annuity Co. Ltd. ULICO has been engaging in initiatives to limit the effect of the counterparty risk and secure additional liquidity, if necessary, and also is continuing legal and transactional actions to recapture the trust assets that are backing reserve credits taken with no resolution to date; AM Best will continue to monitor such efforts as they proceed through or outside of the judicial system.
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