AM Best Downgrades Issuer Credit Rating of The Order of United Commercial Travelers of America

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb” (Fair) from “bb+” (Fair) and affirmed the Financial Strength Rating of B (Fair) of The Order of United Commercial Travelers of America (UCT) (Columbus, OH). The outlook of these Credit Ratings (ratings) is stable.

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

The ratings also reflect UCT’s declining level of risk-adjusted capitalization in support of its insurance and investment risks (despite a conservative investment portfolio and the extensive use of reinsurance), a decline in direct premiums written, and negatively trending net income. The company also maintains an overall small absolute level of capital, which together with its limited financial flexibility and lack of diversification has the potential to magnify the impact of unfavorable operating trends on risk-adjusted capitalization.

UCT’s operating performance has been weak during the past couple of years due to headwinds from the COVID-19 pandemic and higher-than-expected claims. The company maintains modest market positions in a highly competitive accident and health segment in which many of its competitors enjoy significant scale advantages, which limits UCT’s business profile.

However, AM Best notes that UCT implemented an Insurance Oversight Board in April 2019 to help manage its strategic planning, mitigate risks and provide insurance industry expertise. AM Best will continue to monitor UCT’s capital level and operating performance over the near term as the oversight board works with the company. AM Best also notes that UCT has been refocusing its dental, vision and hearing line of business as its primary product line to have it represent a smaller proportion of its written premiums, and provide better diversification between the products in its portfolio While the company has made strategic business shifts in products and distribution, the full impact has yet to be realized.

The stable Long-Term ICR outlook reflects AM Best’s expectation that the company will maintain an overall balance sheet assessment in the adequate range over the intermediate term and continue to focus on improving its weak operating performance.

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