AM Best Downgrades Credit Ratings of Casualty Underwriters Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating to B (Fair) from B+ (Good) and the Long-Term Issuer Credit Rating to “bb+” (Fair) from “bbb-” (Good) of Casualty Underwriters Insurance Company (CUIC) (Salt Lake City, UT). The outlook of these Credit Ratings (ratings) has been revised to stable from negative.

The ratings reflect CUIC’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.

The rating downgrades reflect AM Best’s concerns over the company’s operating performance due to volatility and its prolonged inability to generate favorable underwriting results leading to surplus erosion in two of the past five years. The decline in operating performance has resulted from an increased retention in CUIC’s private passenger automobile book of business. The increased retention on the auto book to 50% from 20% as of Jan. 1, 2019, has reduced the amount of ceding commissions CUIC receives, which has increased the company’s expense and combined ratios. Adverse operating results, as well as the increased retention and lower commissions have led to the company’s five-year average combined ratio comparing unfavorably with the non-standard auto composite.

CUIC’s balance sheet strength assessment remains at the strong level. CUIC also maintains the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). CUIC maintains a diversified high-quality investment portfolio consisting mostly of stocks followed by long-term bonds. Common stock leverage is elevated relative to the composite.

CUIC’s products focus on private passenger non-standard auto and are concentrated in Utah and Idaho, which exposes the company to product and geographic concentration. The company has expanded into North Dakota recently in an effort to diversify the concentration in mainly a single state. The company’s business model has continued to change as it had been acting previously as a fronting carrier for the auto book of business until it began retaining business in 2016. CUIC’s business model also continued to evolve as it exited the Livestock Risk Protection (LRP) Lamb program in 2018 due to significant volatility.

This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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