A.M. Best Removes From Under Review and Affirms Ratings of United Security Assurance Company of Pennsylvania [Professional Services Close – Up]

A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating of B (Fair) and issuer credit rating of "bb" of United Security Assurance Company of Pennsylvania (United Security) (Souderton, PA).

The outlook assigned to both ratings is stable.

The affirmation of United Security's ratings reflects its ultimate parent, CMS Financial Services Corp.'s (CMS), now up-to- date status in the filing of its audited financials for the years 2008, 2009 and 2010 and its improved equity position over that same period. A.M. Best notes that while shareholders' equity has increased, financial leverage continues to remain elevated at approximately 46 percent as of year-end 2010. CMS continues to rely upon United Security to service its debt, which was a result of the financing of its acquisition of the company in late 2007. More recently, Coventry Carelink Holding Corp. (CCHC), an intermediate holding company within the organization, has reported increased profitability and has upstreamed funds to assist in CMS' debt service. Moreover, with the audited financials current, CMS can move forward with its planned purchase of a minority interest, the refinancing of its debt due in the near term and the execution of its capital development strategy.

United Security has historically reported consistent statutory profitability; however, operating losses were reported through the third quarter of 2011. Within the past 12 months, the company experienced higher-than-anticipated claims in some of its recently acquired blocks of long-term care (LTC) business. United Security is in the process of implementing rate increases on several of its acquired LTC blocks to offset any unfavorable claims experience. These increases are expected to significantly improve profitability within those blocks going forward. Furthermore, A.M. Best notes that the company continues to maintain a sound, conservative investment philosophy generating a steady stream of net investment income, and that capitalization remains adequate to support United Security's current investment and insurance risks.

While the outlook on United Security's ratings is stable, future positive rating actions may result from favorable trends in the group's operating performance, strengthened capitalization, as well as improvement in CMS' financial position. However, negative rating actions could result if United Security's operating performance and risk-adjusted capitalization continue to decline, unfavorable experience persists within its acquired LTC blocks or if the organization fails to refinance its debt coming due in the near term.

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/Health Insurers"; "Rating Health Insurance Companies"; and "A.M. Best's Ratings & the Treatment of Debt." Methodologies can be found at ambest.com/ratings/ methodology.

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