A.M. Best has downgraded the financial strength rating to B+ (Good) from B++ (Good) and the issuer credit rating to “bbb-” from “bbb” of San Antonio-based National Unity Insurance Co. (National Unity). The outlook for both ratings is negative.
National Unity operates in the nonstandard auto space and specializes in insuring vehicles — personal and commercial — traveling into the U.S. from Mexico. The company has $30 million and over 3 million policies in sales annually, according to information on its web site.
National Unity has 24 years of uninterrupted experience in this market and, according to the company, maintains more than a 60 percent share.
A.M. Best said the downgrade follows a decline in surplus, sizeable net underwriting losses and adverse reserve development in the third quarter, primarily in the company’s domestic non-standard auto book of business.
National Unity’s results started to deteriorate in 2014 and have significantly worsened through Sept. 30, 2015. Best downgraded National Unity’s issuer credit rating to “bbb” from “bbb+” but affirmed its financial strength rating of B++ in April 2015.
Best said relationships with several of the managing general agents that were producing the business have been terminated, and premium volume and policies in-force have rapidly declined through the year. Inadequate pricing, poor claims handling and inadequate reserving have resulted in adverse operating results, sizeable underwriting losses and an elevated combined ratio, according to the ratings agency.
It is A.M. Best’s opinion that adverse operating results will continue and have a further drain on overall risk-adjusted capitalization.
National Unity maintains fair capitalization for its current rating and historically favorable operating performance. This was accomplished through management’s expertise in its niche product of cross border, low limit and short duration policies. This product continues to produce excellent result, Best said.
Overall, the company’s five-year results are favorable and outperform the private non-standard auto industry composite in several key financial measures.
The ratings agency said deterioration in operating results and overall risk-adjusted capitalization began with the rapid premium expansion in domestic nonstandard auto policies and entrance into states where the company had no operational experience. As a result, underwriting leverage measures sharply increased, surplus deteriorated and overall risk-adjusted capitalization declined, A.M. Best said.
National Unity also offers homeowners insurance.
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