Ratings Recap: Argus, Universal No. Am., DTRIC, Knights of Columbus

June 22, 2009

A.M. Best Co. has downgraded the financial strength rating to ‘D’ (Poor) from ‘C-‘ (Weak) and issuer credit rating to “c” from “ccc-” of Florida-based Argus Fire & Casualty Insurance Company, both with negative outlooks. “These rating actions reflect Argus’ elevated underwriting leverage, considerable exposure growth and significant catastrophe exposure as a personal property writer in Florida,” best explained. “In addition, the company relies substantially on the Florida Hurricane Catastrophe Fund (FHCF) for its catastrophe reinsurance program.” Best added that “due to the contingent capital nature of the FHCF and its recently revised projected claims paying capacity,” the rating agency remains concerned “regarding FHCF’s ability to fund all obligations associated with a severe hurricane. Furthermore, Argus’ significant premium growth in recent years, accelerated by the company’s assumption of policies from Citizens Property Insurance Corporation has put additional stress on the company’s risk-adjusted capital position. As a result, these rating actions are reflective of Argus’ deteriorated risk-adjusted capital position.” Best added that these negative factors are “slightly offset by the company’s conservative investment profile and management’s knowledge of the Florida homeowners’ market. The ratings also acknowledge the potential financial flexibility of Argus’ ultimate parent, United Automobile Insurance Group.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Universal North America Insurance Company (UNAIC) of San Antonio, Texas. Best also affirmed the FSR of ‘A’ (Excellent) and ICRs of “a” of Universal Insurance Group (UIG) and its members, Universal Insurance Company, Eastern America Insurance Company and Caribbean Alliance Insurance Company. In addition, Best Co. has affirmed the FSR (FSR) of ‘B++’ (Good) and ICRs of “bbb+” of Universal Life Insurance Company (ULIC). The ratings for UIG and ULIC have a stable outlook. All companies are located in Puerto Rico unless otherwise noted. Best explained that the “revised outlook for UNAIC reflects weak operating results in 2008 that were not in line with expectations shared with A.M. Best during the initial rating process last year. In 2008, UNAIC posted an underwriting loss of $4.9 million, driven primarily by losses associated with Hurricane Ike and wind/hail events throughout the year as well as losses associated with an assumed book of business.” Best also indicated that it “has concerns with the level of projected premium growth through direct and assumed business over the near term, the inherent risks in integrating new business acquired through renewal rights on existing books of business and the potential strain that this growth places on risk-adjusted capitalization and operating results. This concern is somewhat offset by UNAIC’s supportive capitalization, sound business plan and experienced management team. The rating also recognizes the financial support provided through ongoing capital contributions by its ultimate parent, Universal Group, Inc. (UGI), to ensure that risk-adjusted capitalization supports current operations and future growth initiatives.” Concerning UIG, Bes said it affirmed the ratings based on its “solid operating performance, strong capitalization and its established market position as one of the leading property writers in Puerto Rico. The positive rating factors are derived from the group’s profitable underwriting performance and solid stream of investment income, which have resulted in sizeable pre-tax operating income and strong surplus growth over the most recent five-year period. The affirmation of ULIC’s ratings reflects the company’s well-established marketing presence and brand name recognition in the Puerto Rico marketplace, the financial commitment of its parent, UGI, and its adequate level of risk adjusted capitalization.”

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and an issuer credit rating of “a-” to DTRIC Insurance Underwriters, Limited (DIUL) of Hawaii. The outlook for both ratings is stable. “DIUL conducts insurance business in Hawaii with a focus on providing commercial property, motor and workers’ compensation classes of business on a direct basis,” best noted. “With initial capital of $3.75 million,” the company is fully owned by Hawaiian insurer DTRIC Insurance Company Limited (DTRIC), whose primary shareholder is Japan’s Aioi Insurance Company, Limited. Best said the “ratings recognize the explicit financial and operational support from DTRIC. Both DTRIC and DIUL are run by the same management team. In addition to sharing infrastructure, operations and control systems, DIUL is also protected by a reinsurance agreement issued by DTRIC, where the liabilities of DIUL have been reinsured through a 100 percent quota share.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of A++ (Superior) and issuer credit rating (ICR) of “aa+” of Knights of Columbus (the Order), based in New Haven, Conn. The outlook for both ratings is stable. “The ratings of the Order reflect its strong fraternal and insurance presence within the Catholic communities in the United States and Canada, its superior risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio and the Order’s consistently positive statutory operating results,” said Best. The rating agency also “believes that fraternal programs in other countries such as Mexico, Poland, the Pacific Rim territories and the Philippines could add to new membership growth going forward. The Order has a strong affinity with its large membership base through its charitable programs and competitive portfolio of life insurance and annuity products.” However, Best noted that the “Order’s sizable realized and unrealized capital losses due to the economic turmoil, a somewhat reduced unassigned funds, exposure to commercial mortgage-backed securities, including higher rated and well seasoned Alt-A loans and mixed trends of net gains from operations after refunds over the past five years,” should be considered as offsetting factors. Despite its strong Catholic-based fraternal niche and large Catholic target markets, Best indicated that the “Knights of Columbus’ overall membership growth has been small relative to its size and resources. The increasing competition from large commercial life insurers and the Order’s limited distribution channels may be viewed as limiting factors in achieving higher insurance growth on a consistent basis, although, there is substantial opportunity among existing uninsured members. Overall, A.M. Best believes the Knights of Columbus enjoys a formidable position relative to other Catholic-based fraternal societies. While the Order has generated consistently positive statutory operating results after refunds to members, the trends of net gains from operations have been mixed over the past five years and could remain in a narrow range going forward.”

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