S&P Lowers Universal Casualty Co. Rating to `BBB-pi'
19 December 2000
S&P Lowers Universal Casualty Co. Rating to `BBB-pi'
NEW YORK--Standard & Poor's--Dec. 19, 2000-- Standard & Poor's today lowered its financial strength rating on Universal Casualty Co. (Universal Casualty) to triple-'B'-minus-pi' from triple-'Bpi'.The rating action reflects the rating on the company's ultimate parent (Kingsway Financial Services; triple-'B'-minus counterparty credit rating) and the company's strong capitalization and operating performance offset, in part, by its volatile reserve levels.
Headquartered in Niles, Ill., Universal Casualty (NAIC: 42862) writes mainly nonstandard auto insurance. Business in Illinois constitutes nearly all of the company's revenue and its products are distributed primarily through an affiliate, Ark Insurance Agency. The company, which began business in 1949, is licensed only in Illinois. All of the outstanding shares of Universal Casualty are owned by U.C.C. Corp., an insurance holding company domiciled in Nevada, which is a subsidiary of Kingsway America Inc., which is wholly owned by Kingsway Financial Services (Kingsway), a Canadian financial services holding company. Kingsway actively operates through eight insurance subsidiaries in Canada and the U.S. The Canadian subsidiaries include Kingsway General Insurance Co., York Fire & Casualty Insurance Co., and Jevco Insurance Co. Kingsway's U.S. subsidiaries include Lincoln General Insurance Co. (financial strength rating double-'Bpi'), Yorktowne Insurance Co. (single-'Bpi'), American Service Insurance Co. (double-'Bpi'), Southern United Fire Insurance Co. (single-'Bpi'), and Universal Casualty Co. In addition, the group operates reinsurance subsidiaries in Barbados and Bermuda. Kingsway's shares are publicly traded on the Toronto Stock Exchange .
Major Rating Factors:
| -- | The company's rating is limited by that of its ultimate parent, Kingsway. |
| -- | At year-end 1999, capitalization was extremely strong, as indicated by Standard & Poor's capital adequacy ratio of 228.2%. The gain in surplus of $1.4 million from 1998 was composed mainly of $5.0 million in net income offset by $3.4 million in cash dividends to stockholders, $0.1 million in net unrealized capital losses, and a negative $0.1 million change in the company's nonadmitted assets. |
| -- | Operating performance has been very strong with the average return on revenue from 1996-1999 at 18.5%. The gain in net income of $1.4 million in 1999 compared with the prior year was composed primarily of $2.5 million in net underwriting income, a decline of $1.2 million in net investment income earned, an increase of $0.2 million in net realized capital gains, and $0.1 million in federal income tax incurred. Primarily responsible for the improved underwriting results is private passenger auto liability, which recorded a loss ratio improvement of 23.5 points from the previous year with a 1999 loss ratio of 26.8%. |
| -- | The company's two-year reserve development ratio has been favorable but volatile, with an average reserve release of 10.5% with respect to surplus since 1995. The reported ratios have ranged from 21.6% redundant (negative development) to 2.2% deficient over the last five years. |
| -- | The company's business scope is considered limited. Surplus stood at $16.6 million at year-end 1999 and total 1999 net premiums written amounted to $22.8 million. In addition, the company has a product and geographic concentration with an exposure to catastrophes on a gross basis. In 1999, 100% of direct premiums written were in Illinois. |
Ratings with a 'pi' subscript are insurer financial strength ratings based on an analysis of an insurer's published financial information and additional information in the public domain. They do not reflect in-depth meetings with an insurer's management and are therefore based on less comprehensive information than ratings without a 'pi' subscript. Ratings with a 'pi' subscript are reviewed annually based on a new year's financial statements, but may be reviewed on an interim basis if a major event that may affect the insurer's financial security occurs. Ratings with a 'pi' subscript are not subject to potential CreditWatch listings.
Ratings with a 'pi' subscript generally are not modified with "plus" or "minus" designations. However, such designations may be assigned when the insurer's financial strength rating is constrained by sovereign risk or the credit quality of a parent company or affiliated group, Standard & Poor's said. -- CreditWire