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 ratings of “a” of United Fire & Casualty Group (UFCG) and its five property/casualty members, which operate under an intercompany pooling agreement led by United Fire & Casualty Company (UFCC) [NASDAQ: UFCS].

Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of United Life Insurance Company (ULIC), a wholly owned subsidiary of UFCS. The outlook for these ratings is stable. All companies listed above are domiciled in Cedar Rapids, IA. (See below for a detailed listing of companies and ratings.)

The revised outlook for UFCG reflects the decline in the group’s reported underwriting and operating results in recent years, related primarily to the adverse development in 2008 and 2009 of claims related to Hurricane Katrina in Louisiana and an increase in general liability development, including claims for construction defect. The decline has been relative to both UFCG’s own historic norms and to the average of the commercial casualty composite. While continued adverse development of the Katrina-related claims is anticipated, should other underwriting and operating results not meet or exceed historic norms, there is potential for negative rating actions.

The ratings reflect UFCG’s strong risk-adjusted capitalization, which remains fully supportive of the current ratings. The ratings also consider UFCG’s diversified commercial product offerings, the financial flexibility afforded by UFCC and the group’s long-standing agency relationships and strong regional franchise.

Offsetting these factors are the decline in UFCG’s underwriting and operating results (which were previously discussed), its continued exposure to weather- and catastrophe-related losses and the ongoing competitive pressures in its key target markets.

The ratings of ULIC consider its sufficient level of risk-adjusted capitalization, consistently positive operating performance and its positive unrealized gain position in its investment portfolio, a strong position given the current economic climate.

While statutory earnings are lower than in prior years, capital and surplus increased over the last year primarily due to positive trends in unrealized investment gains. A.M. Best notes that profitability has declined in recent years as a result of lower investment income, the run-off of its credit insurance business, some spread compression in interest-sensitive product lines and fluctuations in ULIC’s effective tax rates due to write-downs. Premium growth trends have been favorable, and ordinary life sales have benefitted during the most recent period from new product offerings. A.M. Best will continue to monitor ULIC’s ability to increase profitability while continuing to produce top line growth.

The FSR of A (Excellent) and ICRs of “a” have been affirmed for United Fire & Casualty Group and its following property/casualty subsidiaries:
  • Addison Insurance Company
  • Lafayette Insurance Company
  • United Fire & Casualty Company
  • United Fire & Indemnity Company
  • United Fire Lloyds

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

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