OLDWICK, N.J.--(BUSINESS WIRE)--
A.M. Best Co. has revised the outlook to stable from negative and
affirmed the financial strength rating of B+ (Good) and issuer credit
rating of “bbb-” of Universal Insurance Company (Universal)
(Winston-Salem, NC).
The affirmation of the ratings reflects Universal’s prospects for
improved risk-adjusted capitalization, as well as solid fee income
through its participation in the North Carolina reinsurance facility, to
which it cedes its auto liability book of business.
The revised outlook is based on the prospects of improved risk-adjusted
capitalization for Universal following its recent sale to the Carolina
Motor Club, Inc. (AAA Carolinas). The outlook was previously
revised to negative following several consecutive years of poor
underwriting performance, which steadily eroded its capital base. The
recent sale will result in additional capital contributions from AAA
Carolinas, which are expected to bolster Universal’s capital base. The
transaction also will result in a restructuring of Universal’s book of
business through an anticipated run off of the commercial property book
of business. This book represents about a third of Universal’s overall
book and has been the primary source of its underwriting losses in
recent years. This initiative to reduce underwriting exposure is further
expected to improve the company’s risk-adjusted capitalization and
reduce underwriting leverage.
Universal still faces a challenging environment to reverse its current
unfavorable earnings trend as its operating performance in recent years
has been adversely impacted by underwriting losses related to
catastrophe activity, a soft underwriting market cycle characterized by
extremely competitive pricing and an elevated expense ratio primarily
due to high commission expenses and technology investments. Furthermore,
Universal’s investment income has been on a declining trend in recent
years partly due to the low interest rate environment. However,
Universal’s parent, AAA Carolinas, which is affiliated with the
nationwide American Automobile Association, Inc. network,
provides the company with access to an extended customer base, which can
be leveraged for member retention and lower acquisition costs.
Additionally, these strengths are enhanced by support from AAA
Carolinas, which includes the aforementioned capital contribution, joint
use of its facilities, back-office systems and sharing of administrative
costs, which is expected to gradually have a favorable impact on
Universal’s high expense ratio.
Downward movement in Universal’s ratings could result from further
deterioration in its underwriting performance, resulting in further
erosion of risk-adjusted capitalization, or a sudden withdrawal or lack
of future support from AAA Carolinas. Upward movement in the company’s
ratings could result from significant improvement in underwriting and
operating performance trends in conjunction with sustained improvement
in risk-adjusted capitalization.
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. Key criteria utilized include:
“Understanding BCAR for Property/Casualty Insurers”; “Risk Management
and the Rating Process for Insurance Companies”; “Catastrophe Analysis
in A.M. Best Ratings”; and “A.M. Best’s Ratings & the Treatment of
Debt.” 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
RESERVED.
A.M. Best Co.
Neil Das Gupta, 908-439-2200, ext. 5206
Senior
Financial Analyst
neil.dasgupta@ambest.com
or
Joseph
Burtone, 908-439-2200, ext. 5125
Assistant Vice President
joseph.burtone@ambest.com
or
Rachelle
Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim
Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public
Relations
james.peavy@ambest.com
Source: A.M. Best Co.
| Copyright: | Copyright Business Wire 2012 |
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