A.M. Best Revises Outlook to Positive for USIC Life Insurance Company [Health & Beauty Close – Up]

A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating (FSR) of B+ (Good) and issuer credit rating (ICR) of "bbb-" of USIC Life Insurance Company (USIC Life) (San Juan, PR).

Concurrently, A.M. Best also has affirmed the FSR of A (Excellent) and ICR of "a+" of United Surety & Indemnity Company (USIC) (San Juan, PR). The outlook for the USIC ratings remains stable.

The change in outlook for USIC Life reflects improved operating results, adequate risk-adjusted capitalization and explicit financial support from the parent company, USIC Group, Inc., and the group's established distribution network. Offsetting these factors are potential statutory surplus strain associated with growth in core business lines, the company's limited business profile and the pressures stemming from the continuing depressed economy in Puerto Rico.

The affirmation of the ratings reflects USIC 's superior capitalization, very strong operating performance over the long term reflective of profitable underwriting, and local market expertise derived through the company's niche market focus.

Partially offsetting these positive factors are USIC's geographic risk concentration within Puerto Rico, which exposes operations to changes within the economic, competitive and regulatory environments, and high underwriting expense ratio. While USIC has grown profitably in the personal dwelling line of business, as a property writer in Puerto Rico, the company's capital remains exposed to the potential for frequent and severe weather-related events. However, this concern is mitigated by the company's sound reinsurance program, which protects surplus from aggregate and shock losses while reducing net retained exposures to a manageable level.

Despite these concerns, the outlook reflects USIC's conservative underwriting approach, very strong operating results reflective of profitable underwriting performance and A.M. Best's expectation for profitable earnings and additional surplus growth over the near term.

Factors that could lead to positive rating action for USIC Life include continued growth in surplus through organic earnings, a reduction in concentration in its primary business line and further earnings diversity. Factors that could result in a negative rating action for USIC Life include deterioration in operating performance, a substantial decline in risk-adjusted capitalization or loss of support from its ultimate parent, USIC Group, Inc.

Factors that could result in downward rating pressure for USIC include significant weakening in operating earnings due to deteriorating underwriting performance, or a material increase in catastrophe losses that weakens overall capitalization. Nevertheless, A.M. Best believes that USIC is well positioned at its current rating level.

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 Life/Health Insurers" ; "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; "Catastrophe Analysis in A.M. Best Ratings"; "Insurance Holding Company and Debt Ratings"; and "Rating Members of Insurance Groups". Best's Credit Rating Methodology can be found at ambest.com/ratings/methodology.

A.M. Best Company is an insurance rating and information source.

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