A.M. Best Revises Outlook to Stable and Affirms Ratings of United Fire Group, Inc. and Its Subsidiaries

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)--

A.M. Best Co. has revised the outlook to stable from negative and 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) (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 and revised the outlook to stable from 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. (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. In addition, underwriting results improved in 2012 and through the first quarter of 2013 as a result of rate revisions, less catastrophic and large loss activity and an increase in favorable prior year loss reserve development.

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), catastrophe and weather-related losses (in 2008 and 2011) and the continuing challenging conditions in the organization’s key target markets.

The rating of UFG recognizes the capital strength of its insurance subsidiaries and the fact that all outstanding debt was repaid during 2012.

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 or an erosion of surplus that causes a decline in risk-adjusted capital to a level that no longer supports the current ratings.

The ratings of United Life acknowledge its solid level of risk-adjusted capitalization, consistently positive operating results and improved growth trends in life insurance premiums. These positive rating factors are partially offset by United Life’s continued exposure to spread compression as a majority of its product reserves are still concentrated in interest-sensitive annuity and life products with high guarantee rates. A.M. Best will continue to monitor the company’s ability to improve profitability by effectively managing crediting rates for existing and new annuity business while growing its ordinary life insurance sales.

A.M. Best believes United Life is well positioned at its current rating level. Future negative rating actions could occur should United Life experience a material decline in capitalization, sizeable deterioration in operating results or an adverse change to its strategic value to its parent company.

The FSR of A (Excellent) and ICRs of “a” have been affirmed for United Fire and 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 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 © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contact:
A.M. Best Co.
Michael Russo, 908-439-2200, ext. 5372
Senior Financial Analyst
michael.russo@ambest.com
or
Michael Lagomarsino, CFA, 908-439-2200, ext. 5810
Assistant Vice President
michael.lagomarsino@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

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