A.M. Best Co. reiterated the issuer credit ratings (“ICR”) of ‘bbb’ of United Fire Group Inc. (UFCS). Concurrently, the rating agency also reiterated the financial strength rating (“FSR”) of A (Excellent) and ICR of 'a' of the property and casualty subsidiaries of United Fire Group. The outlook is negative.
Additionally, A.M. Best also reiterated the FSR of A- (Excellent) and ICR of 'a-' of United Life Insurance Company, a wholly owned subsidiary of United Fire Group. The outlook is stable.
The rating affirmation of United Fire Group takes into account the solid capitalization of its insurance subsidiaries, moderate financial leverage and strong interest coverage ratios.
The rating affirmations of the property and casualty subsidiaries came on the back of its wide array of product offering, favorable reserves, strong risk adjusted capitalization and financial cushion offered by the parent company. Also, the benefit it derives from agency relationships and its strong regional franchise, further fueled by the Mercer Insurance Group, Inc. purchase in March 2011, added to the strong ratings.
However, unstable underwriting and operating results due to cat losses, challenges faced in principal target markets and integration risks of Mercer temper these positives.
The rating affirmations of United Life can be attributed to its continued favorable operating results, rising life insurance premiums and considerable risk-adjusted capitalization.
Nevertheless, exposure to an unstable interest rate environment is a partial offset, as most of its offerings are concentrated in interest-sensitive annuity and life products.
A.M. Best stated that the ratings of United Fire Group and its property and casualty subsidiaries might be subject to a downgrade if its underwriting and operating performance deteriorates below the peer level, risk-adjusted capital erodes and if there arise any unfavorable effect from the Mercer integration.
The ratings of United Life will be subject to downgrade if its investment portfolio and capital level suffer adversely.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining creditworthiness in the market. We believe the company’s strong ratings scores will help retain investor confidence and help it to write more businesses going forward, thereby augmenting the results.
The Travelers Companies Inc. (TRV), which competes with United Fire Group, received rating affirmations from Fitch Ratings last month. Fitch Ratings reiterated Issuer Default Rating (“IDR”) at 'A+' of Travelers. Concurrently, the rating agency reiterated IFS on the company’s subsidiaries at 'AA'. The outlook remains stable.
The quantitative Zacks #1 Rank (short-term Strong Buy rating) for United Fire Group indicates an upward boost on the stock over the near term.
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