OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has upgraded the Financial Strength Rating (FSR) to B- (Fair) from C++ (Marginal) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb-” from “b+” of First Chicago Insurance Company (FCIC). The outlook of these Credit Ratings (ratings) has been revised to stable from positive. Concurrently, AM Best has upgraded the FSR to C+ (Marginal) from C (Weak) and the Long-Term ICR to “b-” from “ccc” of United Security Health and Casualty Company (USH&C), a wholly owned subsidiary of FCIC. The outlook of the Long-Term ICR has been revised to stable from positive while the outlook for the FSR remains stable. Both companies are domiciled in Bedford Park, IL.
The ratings of FCIC reflect its balance sheet strength, which AM Best categorizes as weak, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
The rating upgrades reflect FCIC’s adequate operating performance, which has resulted in favorable underwriting gains, net income and additions to surplus for five consecutive years. These favorable operating metrics are due mainly to consistent underwriting profitability bolstered by other fee income and an increasing stream of net investment. As a result, FCIC’s five-year average combined and operating ratios have outperformed the private passenger non-standard automobile composite.
Partially offsetting these positive rating factors is FCIC’s significantly elevated underwriting leverage and expense ratio, which compare unfavorably with the composite. Despite adding to surplus for five consecutive years, the group continues to grow its direct and new written premiums and policy counts, which may expose the company to pricing and loss reserving errors. As a result, the net and gross underwriting leverage ratios remain well above composite averages. In addition, elevated underwriting expenses driven by commission and other expenses, dampen overall profitability. Further, FCIC has a geographic concentration of risk, as 74% of direct written premium is written in two states, Illinois and Indiana.
Concurrently, the ratings of USH&C reflect its balance sheet strength, which AM Best categorizes as weak, as well as its weak operating performance, very limited business profile and marginal ERM. These assessments reflect the company transitioning since 2017 to a health and property/casualty (P/C) entity from a life/health entity. These rating upgrades mainly reflect additional capital of $1.8 million contributed by its parent in 2019.
Partially offsetting this positive factor is the continued execution risk in management’s ability to execute the business plan successfully and gain traction as a P/C carrier. This execution risk is mitigated somewhat, as USH&C’s parent company has experienced management and a history of operating P/C companies. The positive outlooks reflect AM Best’s expectation that the company will meet its projections for premium growth and operating profitability in 2019.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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