Best’s News & Research Service - August 19, 2015 04:13 PM (EDT)
A.M. Best Downgrades ICR of United Security Assurance Company of Pennsylvania; Remains Under Review with Negative Implications
Oldwick //BestWire// - A.M. Best has downgraded the issuer credit rating (ICR) to "b" from "b+" and affirmed the financial strength rating of C++ (Marginal) of United Security Assurance Company of Pennsylvania (United Security) (Souderton, PA). Following this action, the ratings remain under review with negative implications.
The rating action follows A.M. Best's review of United Security's recently filed June 30, 2015 statutory statement which reflects a continued decline in reported capitalization. A.M. Best notes that capital and surplus for the company has declined by 47 percent over the past 12-month period, driven primarily by operating losses due to unfavorable claims experience on certain blocks of acquired long-term care (LTC) business. This experience resulted from increases in claim reserves and is consistent with recently published industry data regarding claims experience and incidence rates of older-aged policyholders.
United Security's ratings were initially placed under review in December of 2014, when the company reported a substantial decline in capitalization, due to similar operating losses tied to the unfavorable performance of its LTC business. The downgrade of the ICR reflects continued weakness in its capital trends since that time. The company continues to actively pursue rate increases, in an attempt to offset losses; however, A.M. Best believes these actions will take time to have a meaningful impact on future operating results. Additionally, the organization's financial flexibility has been hindered by substantial financial leverage at its parent, CMS Financial Services Corp.
United Security's management has indicated that the company is actively working to implement an improvement plan to enhance risk-adjusted capitalization, including potential utilization of reinsurance. However, A.M. Best believes that given United Security's adverse underwriting results in its acquired LTC blocks, it will be challenged to reverse declining capital and surplus trends and improve risk-adjusted capitalization if a plan is not executed in the near term. A.M. Best expects to continue regular discussions with United Security's management to review alternatives to improve its capitalization, after which A.M. Best expects to resolve the under review status.
This press release relates to rating(s) 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 visit A.M. Best's Ratings & Criteria Center.
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