[January 10, 2013]

A.M. Best Downgrades Ratings of United Security Assurance Company of Pennsylvania

A.M. Best Co. has downgraded the financial strength rating to B- (Fair) from B (Fair) and issuer credit rating to "bb-" from "bb" of United Security Assurance Company of Pennsylvania (United Security) (Souderton, PA). The outlook for both ratings has been revised to negative from stable.

The rating downgrades reflect a material decline in United Security's capital and surplus through September 30, 2012, which led to a corresponding decline in its risk-adjusted capital. In addition, United Security has reported net losses over the past two years with operating performance in 2012 negatively impacted by a significant but voluntary, expected one time increase in Incurred But Not Reported reserves across several of its acquired long-term care blocks. Although the company is in the process of obtaining and implementing substantial rate increases, A.M. Best believes it is unlikely that near-to-medium-term operating results will enable United Security to replenish all of its lost capital, and more importantly, potentially absorb any additional reserve increases if they should be required. Although the company hs been able to diversify into the whole life area, A.M. Best notes that United Security continues to have a limited business profile to offset its concentration in the long-term care business.

A.M. Best believes United Security's future operating success is largely predicated on its ability to garner significant price increases across two of its acquired long-term care blocks. These increases may take several years to be fully implemented over the affected books of business.

United Security's investment portfolio is primarily made up of fixed income investments and has performed well to date. Although United Security's portfolio contains a material proportion of structured securities relative to its capital base, A.M. Best believes this exposure is currently manageable.

The negative outlook reflects A.M. Best's belief that further negative rating actions may occur if United Security's operating losses continue and/or its capital materially declines. Additionally, any acceleration of required debt payments at the parent would likely lead to additional negative rating actions.

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. Best's Credit Rating Methodology can be found at 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.

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