|[January 10, 2013]
A.M. Best Downgrades Ratings of United Security Assurance Company of Pennsylvania
OLDWICK, N.J. --(Business Wire)--
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
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.
Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
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