AM Best has affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bb” (Fair) of First Chicago Insurance Company (FCIC). Concurrently, AM Best has upgraded the Long-Term ICR to “b+” (Marginal) from “b” (Marginal) and affirmed the FSR of C++ (Marginal) of United Security Health and Casualty Insurance Company (USHC), a wholly owned subsidiary of FCIC. The outlook of these Credit Ratings (ratings) is stable. Both companies are domiciled in Bedford Park, IL.
The ratings of FCIC reflect its balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
The ratings affirmation reflects FCIC’s ability to maintain risk-adjusted capitalization supportive of the overall balance sheet strength despite erosion in 2022. As of the third quarter 2022, surplus declined primarily due to underwriting losses and to a lesser extent, unrealized capital losses related to equity investments. The shift, coupled with premium growth in excess of industry thresholds caused risk-adjusted capitalization to decline to the strong level from very strong, as measured by Best’s Capital Adequacy Ratio (BCAR). Though lower, the result does not pressure the overall balance sheet strength assessment. AM Best will continue to closely monitor FCIC’s BCAR score at interim periods to ensure it remains supportive, as the capital position remains highly sensitive to premium growth. The company’s underwriting leverage results continued to trend higher in 2022 and remain significantly elevated when compared to the private passenger non-standard auto composite. Leading up to 2022, the company reported surplus growth in each of the preceding five years.
While the FCIC’s combined ratio through the third quarter 2022 deteriorated due to the underwriting losses, operating performance is expected to remain in line with adequate-level performers. FCIC’s limited business profile reflects operations that are largely focused on non-standard auto and taxi livery business with a geographic footprint concentrated in Midwestern states. FCIC’s management continues to enhance the ERM framework and integrate a more formalized structure into its process.
The ratings of USHC reflect its balance sheet strength, which AM Best assesses as weak, as well as its marginal operating performance, limited business profile and marginal ERM.
The upgrade of USHC’s Long-Term ICR reflects upward movement in the business profile assessment following a strategic shift to focus on non-standard auto business, which the company has had a long-standing history with, while exiting the short-term health segment. With material growth, some uncertainty remains regarding the impact on operating results; however, the company has been profitable in 2022.
The balance sheet strength assessment reflects the uncertainty regarding management’s willingness to maintain prudent underwriting leverage given the company’s track record of aggressive growth, although these measures are currently below the composite averages. Nonetheless, risk-adjusted capitalization remains at the strongest level, as measured by BCAR. Operating performance reflects moderate volatility, particularly as it relates to underwriting results with losses reported in three of the last five years. The ERM program is coordinated with FCIC and continues to evolve.
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