KBRA has downgraded its ratings for United Insurance Holdings Corp.’s (UPC Insurance) property and casualty (P&C) subsidiary in the wake of Hurricane Ian and after United announced it will incur $36.4 million of Q3 losses from the storm.
The rating agency has downgraded the insurance financial strength rating (IFSR) for United Property & Casualty Insurance Company (UPCIC) to BB- from BBB-, with the rating remaining on watch downgrade.
KBRA explained that its decision to downgrade the ratings reflects the losses that United reported from Hurricane Ian, as well as the previously announced decision to place the company into runoff, and a substantial decline in UPCIC’s surplus.
It added that the ratings remain on watch downgrade given the “continued uncertainty and the likelihood of a further decline in surplus as a result of Hurricane Ian.”
Additionally, KBRA notes that, in recent years, UPCIC has experienced poor operating performance and significant surplus declines driven by catastrophe losses, which has elevated underwriting leverage and reduced risk-based capital metrics.
Other credit negatives include a historical trend of adverse reserve development, geographic concentration and dependence on reinsurance somewhat offset by a conservative investment portfolio and an experienced management team.
United’s $36.4 million estimate or losses from Ian is before income taxes, net of expected reinsurance recoveries, and includes a net retention of $16.4 million split approximately $7.4 million to UPCIC and $9.0 million to American Coastal Insurance Company, plus a $20 million retention by its captive reinsurer, UPC Re.
UPC Insurance has received approximately 19,000 claims to date and estimates it will receive 27,000 to 30,000 claims in total with a gross estimated loss of $1 billion.
The company also expects to incur about $16 million of reinstatement premiums that will be amortized over the remaining duration of its core catastrophe reinsurance program expiring May 31, 2023.
KBRA said that a significant infusion of capital from United into UPCIC could result in stabilization of its ratings, but warned that further downgrades could also be driven by deterioration in capital, further impactful weather events, continued operating losses, or an inability to collect on reinsurance.