AM Best has downgraded the Financial Strength Rating to C++ (Marginal) from B (Fair) and the Long-Term Issuer Credit Rating to “b” (Marginal) from “bb+” (Fair) of Casualty Underwriters Insurance Company (CUIC) (Salt Lake City, UT). The outlook of these Credit Ratings (ratings) has been revised to negative from stable.
The ratings reflect CUIC’s balance sheet strength, which AM Best assesses as weak, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).
The rating downgrades reflect substantial weakening in the company’s key balance sheet strength metrics through the first three months of 2023, primarily in the form of surplus erosion, declining risk-adjusted capitalization levels and increasing leverage measures. With CUIC’s recent expansion into several new states, top-line growth has been significant and underwriting volatility has persisted, both of which have impacted the balance sheet strength. Given the company’s elevated common stock leverage relative to its peers, declines to surplus have also been impacted by unrealized capital losses, particularly in 2022. Accordingly, the company’s current level of capital and overall balance sheet strength align better within the weak assessment.
The revised outlooks reflect AM Best’s concerns over the company’s operating performance, given the magnitude of growth in a relatively short time span and CUIC’s prolonged inability to generate positive underwriting results over the last five-year period. Concurrently, the company continues to endure challenges due to inflation and supply chain impacts on claims costs in its non-standard auto lines. While rate is being taken to slow growth and facilitate improvement in performance, the ultimate effectiveness of these efforts remains to be seen.
CUIC’s business profile is limited, as it solely writes private-passenger non-standard auto products and a majority of its business is concentrated in Utah. However, the company has expanded its footprint more recently into Oklahoma, Idaho, North Dakota and Kansas. CUIC’s business model has changed over the years as it had been acting previously as a fronting carrier for the auto book of business, but now retains 50% of that business.
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