OLDWICK, N.J.--(BUSINESS WIRE)--
A.M. Best Co. has affirmed the financial strength rating (FSR) of
B (Fair) and downgraded the issuer credit rating (ICR) to “bb” from
“bb+” of Ullico Casualty Company (Ullico Casualty). Both ratings
have been removed from under review with negative implications and
assigned a negative outlook.
Concurrently, A.M. Best has affirmed the FSR of B++ (Good) and the ICR
of “bbb” of The Union Labor Life Insurance Company (Union Labor
Life). The outlook for these ratings is stable. Both companies are
headquartered in the District of Columbia, and are owned by Ullico,
The ratings of Ullico Casualty take into consideration the subsequent
discussions A.M. Best has had with management and the new information
shared since its ratings were placed under review in February of 2012.
While the ratings of Ullico Casualty continue to reflect the historical
and future profits to be garnered from its core fiduciary and union
liability business, these ratings also take into consideration the
actions taken by management, the potential for further remedial actions
and the time it will take for these actions to be accretive to earnings
and capital formation.
On February 7, 2012, the ratings of Ullico Casualty were downgraded and
placed under review due to the sizable net underwriting loss to be
reported in 2011, the challenges facing the company including the
departure of several of its key executives, the potential loss of its
fronting partner, worst than expected loss experience of its non-core
program business and substantial adverse reserve development stemming
from some of its program partners, as well as the discontinued surety
business. Since then, Ullico Inc.’s management has been proactive in
installing new leadership, discontinuing its poorly performing programs
while taking on further reserve strengthening in the fourth quarter of
2011. During this critical period, management also was successful in
re-establishing a relationship with its former fronting partner, State
National Insurance Company, Inc. (Fort Worth, TX) and maintaining
Ullico Casualty’s excellent retention ratios on its core fiduciary and
union liability business.
While management expects these actions will yield positive results, the
negative rating outlook primarily reflects the continued uncertainty and
near-term volatility around these discontinued programs, the potential
for further loss reserve development and the time it will take to
determine whether or not actions taken by management prove to be
sufficient. Equally important is Ullico Casualty’s weakened capital
position since its substantial net operating loss reported in 2011.
Downward rating pressure is likely to result from additional adverse
loss reserve development and further weakening in Ullico Casualty’s
The ratings of Union Labor Life acknowledge its adequate risk-adjusted
capitalization despite a declining trend in its absolute capital and
surplus in recent years. This decline is primarily due to stockholder
dividends, a significant legal settlement in 2007 and, more recently, to
an investment impairment of one of its separate account funds. However,
the company’s capital and surplus has increased organically in the early
part of 2012. In addition, operating results remained positive in 2011
despite declining fee income from its separate account businesses and an
increase in claims in its medical stop-loss insurance business. A.M.
Best notes that Union Labor Life’s medical stop-loss insurance premiums
have been the primary driver of its new insurance premiums in recent
periods. While Union Labor Life has generally experienced favorable loss
ratios and good persistency, A.M. Best notes that medical stop-loss has
historically been cyclical in nature and remains susceptible to changes
in government regulation.
Potential factors that may result in negative rating actions include a
material decline in Union Labor Life’s risk-adjusted capital and/or a
material deterioration in claims experience within the stop-loss line of
business resulting in net operating losses. In addition, a downgrading
of the ratings of Ullico Casualty may put negative rating pressure on
the ratings of Union Labor Life.
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a
comprehensive explanation of A.M. Best’s rating process and contains the
different rating criteria employed in the rating process. Best’s Credit
Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world’s oldest and most
authoritative insurance rating and information source. For more
information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS
A.M. Best Company, Inc.Richelle Bryan—P/CFinancial
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Adams—L/HSenior Financial Analyst(908)
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Source: A.M. Best Company, Inc.