AM Best Revises Outlooks to Negative for Florida-Based Universal North America

February 20, 2019

AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” of Universal North America Insurance Co. (UNAIC), based in Sarasota, Fla. Concurrently, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” of Universal Insurance Co. (PR) (UIC) (Guaynabo, PR). The outlook of UIC’s Credit Ratings (ratings) is stable.

The ratings of UNAIC reflect its balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The ratings also reflect the implicit support received from UNAIC’s ultimate parent, Universal Group, Inc.

The revised outlooks to negative largely reflect the decline in UNAIC’s operating performance in the most recent years, which has placed pressure on AM Best’s current assessment of adequate. While the operating performance has been impacted by recent hurricane activity (2017 and 2018), the negative outlooks also consider the underlying performance, which has been impacted unfavorably by other weather-related losses, such as wildfires in California. The company has implemented a number of initiatives to improve underwriting performance, including rate increases, non-renewal of unprofitable accounts and investing in new technology, Best said.

UNAIC’s balance sheet assessment is supported by its strong level of risk-adjusted capitalization, its conservative investment portfolio, stable loss reserving trends and comprehensive reinsurance program. These positive factors are offset partially by the company’s high underwriting leverage and its significant catastrophe exposure, as evidenced by the weather events in 2017 and 2018. AM Best’s assessment of UNAIC’s business profile reflects the company’s solid geographic spread of risk and range of personal property products. Weather-related events continue to be UNAIC’s primary risk, and part of its ERM program has been centered appropriately around mitigating this exposure through a comprehensive reinsurance program, strategic placement of coverage and strict underwriting guidelines.

The ratings of UIC reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM.

UIC’s balance sheet strength is supported by its strongest level of risk-adjusted capitalization, stable loss reserving trends, and solid liquidity measures that are enhanced by positive operating cash flows.

Partially offsetting these positive factors, Best said, are UIC’s high-ceded leverage and ongoing stockholder dividend payments. The company has produced solid operating earnings over the long term, primarily driven by strong investment earnings, and other income coupled with variable underwriting results. UIC’s business profile reflects the company’s market leader position in the personal auto space in Puerto Rico. The company continues to enhance its formalized ERM program, which includes, for example, revising risk assessment across the organization.

Source: AM Best

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