KBRA Downgrades Rating for Unique Insurance Company, Affirms Rating for Stonegate Insurance Company, and Removes Watch Downgrade Status from Both Companies
25 Apr 2024 | New York
KBRA downgrades the Insurance Financial Strength Rating (IFSR) for Unique Insurance Company (UIC) to BBB- and affirms the BBB IFSR for Stonegate Insurance Company (SIC). The Watch Downgrade status on both companies has been removed and the Outlook is Stable for both ratings.
Key Credit Considerations
The downgrade of UIC reflects KBRA stress testing results which demonstrated an inadequate margin for maintaining a BBB rating level over the medium term. While UIC benefited from a revised surplus relief quota share agreement with its affiliate, Prospero Re Ltd. (A/Stable), and material 2023 rate increases, the company still required a significant capital contribution from its parent, Producer’s National Corporation (PNC) to emerge from regulatory action by the end of 2023.
The affirmation of SIC’s rating reflects stabilization of policyholders’ surplus and RBC (ACL), primarily from the benefit of the revised surplus relief quota share agreement noted above in conjunction with a minimal capital contribution from PNC in 2023. In addition to 2023 rate increases that had not yet fully earned through by the end of the year, SIC has ongoing simplification initiatives in progress. KBRA believes the company has adequate capital to withstand moderate deterioration in financial position at the current rating level while the benefits of the simplification initiatives flow through to the financial results.
Rating Sensitivities
Improved underwriting results, consistent reserving with negligible adverse development, implementation of a formal ERM program and improved risk-adjusted capitalization at UIC could result in positive rating action. Reduced support from Resolute Global Partners, further regulatory action at UIC, continued poor underwriting results, material adverse loss reserve development, deterioration in the quality of the investment portfolios and/or adverse change in risk profile could result in a negative rating action.
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