Best Revises Universal North America’s Outlook to Stable; Affirms Ratings

June 10, 2011

A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Texas-based Universal North America Insurance Company (UNAIC).

Best also affirmed the FSR of ‘A ‘(Excellent) and ICR of “a” of Universal Insurance Company (UIC), which is headquartered in Guaynabo, Puerto Rico, as well as the FSR of ‘B++’ (Good) and ICR of “bbb+” of Universal Life Insurance Company (ULIC), headquartered in Hato Rey, Puerto Rico, which is a wholly owned subsidiary of Universal Group, Inc. (UGI). The outlook for all of the ratings is stable.

The affirmation of UIC’s ratings reflects its “solid operating performance, strong capitalization and established presence within Puerto Rico,” Best explained. These positive rating factors reflect UIC’s “sustained underwriting profitability, which has benefited from favorable reserve development given management’s prudent risk selection, and solid investment income. As a result, surplus growth and overall risk-adjusted capitalization has benefited from organic growth in capital through earnings over the recent five-year period.”

As partial offsetting factors Best cited “UIC’s geographic risk concentration, exposure to natural catastrophes and the potential impact that weather-related losses could have on operating results and overall capitalization.” However, best also indicated that despite these concerns, the outlook reflects its “expectation that strong operating earnings over the near term will result in additional growth in policyholder surplus.

“The affirmation of UNAIC’s ratings recognizes its supportive capitalization, sound business plan and experienced management team. The ratings also recognize the financial support provided through ongoing capital contributions by its ultimate parent, UGI, totaling $51.1 million during the recent five-year period to maintain risk-adjusted capitalization at levels supportive of current operations and future growth initiatives.”

As offsetting factors for UNAIC, Best noted its “variable operating performance, the inherent risks associated with integrating new business acquired through renewal rights and agency relationships on existing books of business, as well as the strain this growth places on risk-adjusted capitalization to support the business.”

Best also pointed out that “UNAIC’s operating performance will be challenged by marketplace competition in both its current and expansion states while remaining exposed to the potential for natural catastrophe losses.

“However, these concerns are somewhat mitigated by the company’s sound reinsurance program, which reduces the impact of both aggregate and shock losses on UNAIC’s capital position. Notwithstanding, the stable outlook acknowledges the company’s improved operating performance in recent years and the expectation that overall capitalization will support additional premium growth reflective of both profitable earnings and contributed capital.

“The affirmation of the ratings reflects ULIC’s favorable operating performance, an implied financial support of UGI and its adequate level of risk-adjusted capitalization. Partially offsetting these strengths is ULIC’s high product concentration risk associated with growth in its fixed and variable annuities.

Source: A.M. Best

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