A.M. Best Changes Credit Ratings of Merced Property & Casualty Company; Downgrades Credit Ratings of Remaining United Heritage Financial Group, Inc.’s Operating Entities

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best has changed the Financial Strength Rating (FSR) to a Non-Rating Designation of F (In Liquidation) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “f” from “a-” of Merced Property & Casualty Company (Merced) (Atwater, CA), following the announcement on Nov. 30, 2018, that the California Insurance Commissioner filed a petition to place Merced into liquidation. On Dec. 3, 2018, the Superior Court of the State of California, County of Merced, is expected to enter an Order Appointing Liquidator.

Merced’s impending Order of Liquidation resulted from significant claims from the Camp Fire in Northern California that destroyed Paradise, CA, and surrounding areas in Butte County. The homeowners claims filed are far in excess of the company’s current assets, surplus and catastrophe reinsurance protection.

Concurrently, A.M. Best has downgraded the FSR to B+ (Good) from A- (Excellent) and the Long-Term ICR to “bbb-” from “a-” of United Heritage Property & Casualty Company (UHPC) (Meridian, ID). A.M. Best also has downgraded the FSR to B++ (Good) from A- (Excellent) and the Long-Term ICR to “bbb” from “a-” of Sublimity Insurance Company (SIC) (Sublimity, OR). The outlook for these Credit Ratings (ratings) has been revised to negative from stable. Lastly, A.M. Best has downgraded the FSR to B++ (Good) from A- (Excellent) and the Long-Term ICR to “bbb+” from “a-” of United Heritage Life Insurance Company (UHLIC) (Meridian, ID). The outlook of the Long-Term ICR has been revised to negative from stable while the outlook of the FSR remains stable.

The ratings for UHPC reflect the company’s balance sheet strength, which A.M. Best categorizes as strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM). The ratings for SIC reflect the company’s balance sheet strength, which A.M. Best categorizes as strong, as well as its adequate operating performance, limited business profile and marginal ERM. The ratings for UHLIC reflect the company’s balance sheet strength, which A.M. Best categorizes as strong, as well as its adequate operating performance, neutral business profile and marginal ERM.

The rating actions on these entities reflect a change in their ERM assessments to marginal from appropriate following the imminent liquidation order for Merced, as modeled exposures proved insufficient in estimating overall capital at risk after an extraordinary catastrophic event. Merced also faced a concentration of exposures and inadequate reinsurance protection. This raised concerns at A.M. Best regarding the overall adequacy of the organization’s ERM framework, and as a result, the ERM assessment has been lowered at all operating subsidiaries under United Heritage Financial Group, Inc. The Long-Term ICR downgrades for UHPC and SIC also reflect the removal of lift received from the life company, given the lack of support for Merced.

The Long-Term ICR outlook revisions to negative reflect the ongoing regulatory and operational risks arising from damage to the companies’ reputation caused by the recent events of a member company. These Long-Term ICR outlooks further reflect A.M. Best’s concerns regarding the strategic importance and support of the property/casualty operations in UHFG’s overall business model and profile.

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Kevin Varvaro

Financial Analyst—L/H

+1 908 439 2200, ext. 5487

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Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

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Maurice Thomas

Senior Financial Analyst—P/C

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Jim Peavy

Director, Public Relations

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Source: A.M. Best