A.M. Best Downgrades and Places Under Review the Ratings of United Security Assurance Company of Pennsylvania

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has downgraded the financial strength rating to B (Fair) from B+ (Good) and issuer credit rating to “bb” from “bbb-” of United Security Assurance Company of Pennsylvania (United Security) (Souderton, PA). Additionally, these ratings have been placed under review with negative implications.

The ratings downgrade of United Security reflects A.M. Best’s concerns regarding the company’s ultimate parent company, CMS Financial Services Corp. (CMS), and other non-insurance entities within the organization. CMS has been reliant on United Security to service the debt, which was a result of the financing of its acquisition of the company in late 2007. While CMS and its non-insurance entities have made progress in the generation of revenue since the formation of CMS in 2007, CMS has considerable leverage and currently has limited access to capital to support its business needs. Additionally, A.M. Best is concerned with CMS’s delay in completing its audited financials over the last few years and believes there will likely be a material decline in the GAAP equity when its audits are finalized.

United Security’s ratings will remain under review with negative implications pending the completion of CMS’s 2009 and 2010 audited financials. This must be completed before CMS can proceed with its planned purchase of a minority interest in the company and execute its capital development strategy. CMS’s management can then move forward with its business plan without the audit distraction.

United Security continues to report a relatively consistent level of profitability, and capital remains adequate to support its current liabilities. Most recently, the company experienced higher than anticipated claims in some of its recently acquired blocks of long-term care business. While United Security has not increased rates in recent years, it continues to monitor all of its business to determine whether rate increases are necessary to offset any unfavorable claims experience. A.M Best notes that the company continues to maintain a sound, conservative investment philosophy generating a steady stream of net investment income.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Life and Health Insurers”; “Rating Health Insurance Companies”; and “A.M. Best’s Liquidity Model for U.S. Life Insurers.” Methodologies 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.

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A.M. Best Co.
Kathryn Steffanelli, 908-439-2200, ext. 5063
Senior Financial Analyst
[email protected]
or
Carl Austin, 908-439-2200, ext. 5500
Assistant Vice President
[email protected]
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
[email protected]
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
[email protected]

Source: A.M. Best Co.