KBRA downgrades UPCIC’s financial strength rating

KBRA has downgraded the insurance financial strength rating (IFSR) to BBB- from A- for United Property & Casualty Insurance Company (UPCIC). In addition, KBRA has affirmed the issuer and debt rating for United Insurance Holdings Corporation (UIHC) of BBB- and the IFSRs for American Coastal Insurance Company and Interboro Insurance Company of A-. All ratings have been placed on Watch Downgrade.

The downgrade of UPCIC and the placement of the IFSR on Watch Downgrade reflect UIHC’s decision to place the company into runoff and the substantial decline in UPCIC’s surplus as of 30 June.

Additionally, in recent years, UPCIC has experienced poor operating performance and significant surplus declines driven by catastrophe losses, KBRA said, adding that these have elevated underwriting leverage and reduced risk-based capital metrics.

The rating agency added: “This is reflective of the worst five-year period for US insured catastrophe losses and includes hurricanes Irma (2017), Michael (2018), and Ida (2021), which are #5, #10 and #2 on the list of costliest hurricanes in US history. In addition, 2020 was the most active storm year on record for frequency of landfalls.”

Other credit negatives include a historical trend of adverse reserve development, geographic concentration and dependence on reinsurance somewhat offset by a conservative investment portfolio, a favourable distribution and market position and an experienced management team.