A.M. Best Upgrades Ratings of Unity Financial Life Insurance Company [Manufacturing Close – Up]

A.M. Best Co. has upgraded the financial strength rating to B++ (Good) from B+ (Good) and issuer credit rating to "bbb" from "bbb-" of the Unity Financial Life Insurance Company (Unity Financial Life) (Cincinnati, OH).

The outlook for both ratings has been revised to stable from positive.

The rating actions reflect the benefits derived from the recent acquisition of the outstanding interest in Unity Financial Insurance Group, LLC-the immediate parent of Unity Financial Life-by the family of Thomas C. Hardy. Through its downstream holding companies, the family is now the sole owner of Unity Financial Life. A.M. Best believes this acquisition has stabilized the ownership of the life company. Thomas C. Hardy is the president and chief executive officer of Unity Financial Life as well as a member of its Board.

Additionally, the rating actions recognize Unity Financial Life's growing presence in the preneed market. Over the past several years, Unity Financial Life has seen a rapid increase in net premium growth through strong sales of its traditional preneed products distributed through funeral homes and its funeral trust products disseminated primarily through estate planners and elder care attorneys. The rating action also acknowledges the company's overall positive net operating performance and good levels of risk-adjusted capitalization enhanced by increasing levels of total capital, a stable insurance liability structure and a conservative balance sheet comprised almost entirely of investment grade long-term bonds. Finally, despite the debt incurred in connection with the acquisition, consolidated financial leverage and interest coverage remain within A.M. Best's guidelines for the current rating.

Partially offsetting these positive rating factors is Unity Financial Life's sole dependence on its preneed business for net premium growth. A.M. Best remains concerned with the challenges inherent in the preneed market, especially the impact of the continuing low interest rate environment on preneed product pricing flexibility. A.M. Best considers Unity Financial Life's total capital to be modest. A.M. Best believes the company will be challenged to grow its capital at historical levels and maintain adequate levels of risk-adjusted capitalization given the top-line growth initiatives anticipated and the dividend demands expected to service the debt associated with the acquisition.

Given the recent positive movement in Unity Financial Life's ratings, A.M. Best believes the company is well positioned at its current rating level in the near term. Key rating factors that could result in a negative rating action include a sustained decline in absolute and/or risk-adjusted capital; operating performance that is insufficient to service the debt at the holding company; or material declines in net premium income trends.

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 ambest.com/ratings/methodology.

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

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