Ratings of Illinois-Based Unique Insurance Downgraded

April 21, 2015

A.M. Besthas downgraded the financial strength rating to B- (Fair) from B (Fair) and the issuer credit rating to “bb-” from “bb” of Unique Insurance Co. (Unique) of Chicago, Ill.

The outlook for both ratings has been revised to negative from stable.

The negative rating actions reflect Unique’s decline in overall risk-adjusted capitalization following substantial growth in the fourth quarter of 2014 and continuing through 2015.

Increases in net premiums have significantly outpaced surplus growth resulting in elevated leverage measures that compare unfavorably with other private passenger non-standard automobile writers. Unique’s elevated expense position, driven by commission costs, also contributes negatively to the company’s profitability.

In earlier years, capitalization was weakened by a $2 million contribution to assist in starting up a sister company, Stonegate Insurance Co., formed to primarily underwrite higher limit standard auto insurance business in Illinois.

Partially offsetting these negative rating factors are the company’s generally positive operating results. In most years, the company generates favorable net income and positive pre-tax and total returns on revenue and equity.

The company’s average pure loss ratio compares favorably with the industry composite. While premium growth is outpacing surplus growth, Unique has been able to add to surplus each year with the exception of 2011. This is mainly due to a combination of investment income and fee income that offset the overall underwriting losses of the last five years and resulted in a five-year average total return on equity in the double digits.

Negative pressure on the ratings will persist if risk-adjusted capitalization continues to deteriorate or if operating performance begins to decline. Any future positive action will require improvement in risk-adjusted capitalization and underwriting leverage measures while maintaining favorable operating performance.

Source: A.M. Best

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