AM Best Upgrades Credit Ratings of United Security Insurance Company; Affirms Credit Ratings of First Chicago Insurance Company

AM Best has upgraded the Financial Strength Rating (FSR) to B (Fair) from C++ (Marginal) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb” (Fair) from “b+” (Marginal) of United Security Insurance Company (USIC), an affiliate of First Chicago Insurance Company (FCIC). Concurrently, AM Best has affirmed the FSR of B (Fair) and the Long-Term ICR of “bb” (Fair) of FCIC. The companies are collectively referred to as First Chicago Insurance Group (First Chicago). The outlook of these Credit Ratings (ratings) is stable. Both companies are domiciled in Bedford Park, IL.

The ratings reflect First Chicago’s 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 of USIC have been upgraded based on its growing strategic partnership with, as well as explicit and implicit support provided by, FCIC (the parent). The more structured integration of both operations and strategic goals have led AM Best to view the two companies as a collective group. USIC has shifted its focus to non-standard auto markets, an area in which FCIC has operated for a material amount of time. In more recent periods, management has used USIC more strategically for rate flexibility and licensing as it pursues non-standard auto markets. USIC’s premium and contribution to the group’s earnings have grown, reflecting its strategic importance to the organization’s overall business strategy. Products for both companies are collectively branded under the Warrior Insurance Network moniker.

The rating affirmation of FCIC reflects its ability to maintain risk-adjusted capitalization supportive of the overall balance sheet strength assessment as reflected by surplus growth reported in four of the past five years and generally favorable loss reserve development. While FCIC’s risk-adjusted capital position has moderately weakened from prior years, as measured by Best’s Capital Adequacy Ratio (BCAR), - due to premium growth in excess of industry thresholds - it remains supportive of the overall balance sheet strength assessment of adequate. AM Best will continue to monitor the company’s risk-adjusted capitalization closely at interim periods as it remains sensitive to premium growth. Nonetheless, the absolute capital level materially increased through the first nine months of 2023, with the group adding $12.2 million, or roughly 26% to surplus, primarily driven by the policy fees and net investment income that offset underwriting losses. While underwriting leverage remains materially elevated when compared with the private passenger non-standard auto composite, operations have been profitable on a pretax basis over the past several years and continued to be so through third quarter 2023.

Operating performance has been generally favorable over the past five years, driven by fee income and net investment income partially offset by volatility in underwriting results. The group’s combined and operating ratios have outperformed its peer composite on both a five-and 10-year average basis. The group reported underwriting gains or modest underwriting losses in most of the past 10 years; however, in 2022, the severity increased, largely influenced by macro-economic conditions. Management implemented a number of rate increases and corrective underwriting actions, which translated into a more moderate level of underwriting losses in 2023.

First Chicago’s limited business profile reflects operations that are largely focused on non-standard auto and to a lesser extent, taxi livery business. Geographic concentrations in Texas, Illinois and Indiana reflect over 80% of direct premium. Recent efforts have focused on improved rate adequacy and enhanced pricing sophistication to strengthen the group’s underwriting, claims handling and risk selection. Management continues to enhance the ERM framework and integrate a more formalized ERM structure into the organization’s process, specifically as it relates to insurance-specific risks.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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