OLDWICK: AM Best has downgraded the Financial Strength Rating to B (Fair) from A- (Excellent) and the Long-Term Issuer Credit Ratings to “bb” from “a-” of United Insurance Company (UIC) and its subsidiary, United Re (Europe) S.A.
AM Best also removed them from under review with negative implications. AM Best has withdrawn the ratings of UIC and United Re at the company’s request to no longer participate in AM Best’s interactive rating process.
AM Best placed the ratings under review with negative implications in August 2019, following UIC’s disclosure that as part of an affiliated transaction, it provided a cash deposit that materially weakened its balance sheet strength and liquidity. The cash deposit was repaid to UIC in October 2019.
The ratings reflect UIC’s balance sheet strength, which AM Best categorizes as weak, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management.
UIC’s risk-adjusted capitalization has been impacted negatively by significant growth, operating losses and an increase in investment risk. Additionally, in 2019 the group received an affiliated surplus note, which has limited its risk-adjusted capital and liquidity position.
The group’s balance sheet strength at year-end 2019 is projected to improve due to the monetization of an affiliated recoverable, maintenance of lower risk invested assets, a stabilization in new business growth and a significant improvement in operating performance.
The group’s operating performance over the past five years has been volatile, and recently, the group incurred increased losses and related expenses on its new third-party business. Investment returns have been variable over the past five years and have trended lower.
UIC’s risk management framework and management’s capabilities relative to its risk profile have been strained. UIC recently has taken actions to limit its underwriting losses and investment risk, by non-renewing underperforming business and liquidating its main investment fund. AM Best remains concerned with the level of material affiliated transactions and lack of timely communication of such transactions.