OLDWICK, N.J.--(BUSINESS WIRE)--
A.M. Best Co. has affirmed the financial strength rating (FSR) of
A (Excellent) and issuer credit ratings (ICR) of “a” of the
property/casualty subsidiaries of United Fire Group, Inc. (UFG)
[NASDAQ: UFCS] (collectively known as United Fire), which operate under
an inter-company pooling agreement led by United Fire and Casualty
Company. Concurrently, A.M. Best has affirmed the ICR of “bbb” of
UFG. The outlook for these ratings is negative.
At the same time, A.M. Best has affirmed the FSR of A- (Excellent) and
ICR of “a-” of United Life Insurance Company (United Life), a
wholly owned subsidiary of UFG. The outlook for these ratings is stable.
All companies are domiciled in Cedar Rapids, IA, except where specified.
(See below for a detailed listing of the companies and ratings.)
The ratings of United Fire reflect its solid risk-adjusted
capitalization, diversified commercial product offerings, historically
favorable core reserve levels and the financial flexibility afforded by
UFG. United Fire’s ratings also reflect the continued advantages of its
long-standing agency relationships and solid regional franchise, which
was enhanced by the acquisition of Mercer Insurance Group, Inc. and its
property/casualty insurance subsidiaries (Mercer) in March 2011.
These positive rating factors are partially offset by the variability in
United Fire’s underwriting and operating results in recent years, driven
by adverse loss reserve development from Hurricane Katrina-related
claims (in 2008 and 2009) and catastrophe and weather-related losses (in
2008 and 2011), the continuing challenging conditions in the
organization’s key target markets and execution risk associated with the
integration of Mercer into its operations.
The rating of UFG recognizes the capital strength of its insurance
subsidiaries, its modest financial leverage and adequate interest
coverage measures.
While A.M. Best believes UFG and United Fire’s ratings are well
positioned at their current levels, factors that may lead to negative
rating actions include a trend of deteriorating underwriting and
operating performance to a level below peers, an erosion of surplus that
causes a decline in risk-adjusted capital to a level that no longer
supports the current ratings or if the group were to experience any
adverse impacts with its ongoing integration of Mercer’s operations.
However, factors that may lead to positive rating actions include
maintaining strong risk-adjusted capitalization while reporting improved
operating and underwriting results and the continued smooth integration
of Mercer’s operations.
The ratings of United Life acknowledge its adequate level of
risk-adjusted capitalization, consistently positive operating results
and improved growth trends in life insurance premiums. The ratings also
recognize the five-year growth in capital, despite paying $27 million in
dividends over this period to UFG.
These positive rating factors are partially offset by United Life’s
continued exposure to interest rate volatility as a majority of its
product reserves are still concentrated in interest-sensitive annuity
and life products. A.M. Best will continue to monitor the company’s
ability to improve profitability along with growth in the ordinary life
market and manage controlled growth in annuity business.
A.M. Best believes United Life is well positioned at its current rating
level. Future negative rating actions could occur should United Life
experience significant impairments in its investment portfolio, a
material decline in capitalization or significantly increased spread
compression in its interest sensitive life insurance and fixed annuity
business.
The FSR of A (Excellent) and ICRs of “a” have been affirmed for United
Fireand Casualty Company and its following property/casualty
subsidiaries:
- Lafayette Insurance Company
- Addison Insurance Company
- United Fire & Indemnity Company
- United Fire Lloyds
- Mercer Insurance Company
- Financial Pacific Insurance Company
- Mercer Insurance Company of New Jersey, Inc.
- Franklin Insurance Company
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: “Catastrophe Analysis in A.M. Best Ratings”; “Equity
Credit for Hybrid Securities”; “Insurance Holding Company and Debt
Ratings”; “The Treatment of Terrorism Risk in the Rating Evaluation”;
“Risk Management and the Rating Process for Insurance Companies”;
“Understanding BCAR for Property/Casualty Insurers”; and “Rating Members
of Insurance Groups.” Best’s Credit Rating Methodology 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.
Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS
RESERVED.
A.M. Best Co.
Michael Russo
Financial Analyst
908-439-2200,
ext. 5372
michael.russo@ambest.com
or
Michael
Lagomarsino, CFA
Assistant Vice President
908-439-2200,
ext. 5810
michael.lagomarsino@ambest.com
or
Rachelle
Morrow
Senior Manager, Public Relations
908-439-2200,
ext. 5378
rachelle.morrow@ambest.com
or
Jim
Peavy
Assistant Vice President, Public Relations
908-439-2200,
ext. 5644
james.peavy@ambest.com
Source: A.M. Best Co.