AM Best Removes From Under Review With Negative Implications, Downgrades Credit Ratings of Universal North America Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has removed from under review with negative implications and downgraded the Financial Strength Rating to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Rating to “bbb-” (Good) from “bbb” (Good) of Universal North America Insurance Company (UNAIC) (Arlington, TX). The outlook assigned to these Credit Ratings (ratings) is negative.

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

The rating downgrades reflect AM Best’s view that UNAIC’s balance sheet strength no longer supports the strong assessment and a revision in its business profile assessment to limited from neutral. The company’s policyholder surplus declined approximately 50% over the most recent five-year period, despite capital contributions from its ultimate parent totaling $42.5 million over the same period. The weakened capital position and leverage measures reflect UNAIC’s increased vulnerability to reinsurance dependence and reserve inadequacy.

Partially offsetting these negative factors are the company’s comprehensive reinsurance program with strong partners and stable loss-reserving trends. UNAIC’s operating results have been volatile and have driven the surplus decline due to weather-related losses throughout its operating territories in recent years. Underwriting results trail its composite averages by a significant margin and are driven by elevated loss ratios. In 2021, the company implemented a strategy to improve profitability by reducing its footprint in its operating territories, shifting its product mix to a higher concentration in the homeowners line and shedding unprofitable business. This strategy has changed AM Best’s view of UNAIC’s business profile assessment to limited, given the higher concentration of the book of business; however, the company maintains geographic diversification as it is currently operating in 14 states.

Along with this rating action, AM Best has increased the level of lift that UNAIC receives via the Universal Group, Inc.’s ongoing support in the form of capital contributions, as well as operational and technological support.

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