OLDWICK: AM Best has revised the outlook to stable from positive for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICR of “a” of Utica First Insurance Company (Utica First) (Oriskany, NY).[the_ad id=”31605″] The outlook of the FSR remains stable.
The Credit Ratings (ratings) reflect Utica First’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The revision of the Long-Term ICR outlook to stable from positive reflects the volatility in Utica First’s operating performance and elevated common stock leverage that resulted in a decline in surplus as of year-end 2018, owed to a large underwriting loss and unrealized losses from its equity portfolio.
Although Utica First’s equity portfolio has rebounded so far in 2019, the company’s concentration in several coastal Northeastern states creates susceptibility to frequent and severe weather-related activity that can result in volatile underwriting results.
Utica First’s balance sheet strength is very strong, supported by its strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), as well as its low net and gross underwriting leverage and favorable liquidity measures. However, Utica First’s reinsurance dependence measures and its common stock leverage are elevated relative to the composite averages.
The company’s adequate operating performance is a reflection of its strict underwriting standards that have resulted in a five-year combined ratio that compares favorably with the composite average.
However, an increase in weather-related activity, including seven catastrophe events, resulted in a large underwriting loss in 2018. Additionally, Utica First has experienced solid premium growth over the past five years from a mix of rate increases, new product offerings and agency partnerships.
The company’s neutral business profile is a reflection of the company’s strength in its target markets, including small restaurants and artisan contractors. Although Utica First is concentrated in New York, Connecticut and New Jersey, it also has expanded over the past ten years and now writes in nine states.
Utica First has a good understanding of its target markets and continues to offer new products to diversify and meet its customers’ needs.
Utica First’s ERM is appropriate for its size and complexity with the organization maintaining formalized risk appetite and tolerance statements. Utica First purchases catastrophe reinsurance above its modeled 1 in 100-year event, but is exposed to considerable tail risk, as reflected by BCAR at the 99.8% VaR confidence level.
However, the company has implemented coastal management strategies to mitigate its concentration of coastal exposures in Long Island and Connecticut.