OLDWICK, New Jersey – (COMMERCIAL THREAD) –AM Best Downgraded the financial strength rating to B (Fair) from B + (Good) and the issuer’s long-term credit rating to “bb +” (Fair) from “bbb-” (Good) from Casualty Underwriters Insurance Company ( CUIC) (Salt Lake City, UT). The outlook for these credit ratings (ratings) has been revised from negative to stable.
The ratings reflect the strength of CUIC’s balance sheet, which AM Best considers strong, as well as its marginal operational performance, limited business profile and marginal management of enterprise risk.
The credit rating downgrades reflect AM Best’s concerns about the company’s operational performance due to volatility and its prolonged inability to generate favorable underwriting results, leading to erosion of surpluses in two of the past five years. The decrease in operating performance is attributable to increased retention in CUIC’s passenger car business book. The increased retention on the automotive ledger to 50%, down from 20% as of January 1, 2019, has reduced the amount of transfer commissions that CUIC receives, which has increased the company’s expenses and combined ratios. Unfavorable operating results, along with increased retention and lower commissions, caused the company’s five-year average combined ratio to compare unfavorably to the non-standard automotive composite.
The assessment of the strength of CUIC’s balance sheet remains at a high level. CUIC also maintains the highest level of risk-adjusted capitalization, as measured by Best’s capital adequacy ratio (BCAR). CUIC maintains a high-quality, diversified investment portfolio consisting primarily of equities followed by long-term bonds. The leverage effect of common stocks is high compared to the composite.
CUIC’s products focus on non-standard passenger cars and are concentrated in Utah and Idaho, exposing the company to geographic and product concentration. The company recently expanded to North Dakota with the goal of diversifying the focus primarily in one state. The company’s business model has continued to change, as it previously acted as the leading carrier for the automotive business portfolio until it began to maintain operations in 2016. 2018 due program due of significant volatility.
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