Merced P&C downgraded to ‘F’ after California wildfire hit
AM Best has changed the Financial Strength Rating (FSR) to a Non-Rating Designation of F (In Liquidation) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “f” from “a-” of California-based Merced Property & Casualty Company.
The downgrade follows the announcement on Nov. 30, 2018, that the California Insurance Commissioner filed a petition to place Merced into liquidation.
Merced’s impending Order of Liquidation resulted from significant claims from the Camp Fire in Northern California that destroyed Paradise, and surrounding areas in Butte County. The homeowners claims filed are far in excess of the company’s current assets, surplus and catastrophe reinsurance protection, AM Best noted.
Concurrently, AM Best has downgraded the FSR to B+ (Good) from A- (Excellent) and the Long-Term ICR to “bbb-” from “a-” of United Heritage Property & Casualty Company. The agency has also downgraded the FSR to B++ (Good) from A- (Excellent) and the Long-Term ICR to “bbb” from “a-” of Sublimity Insurance Company. The outlook for these Credit Ratings (ratings) has been revised to negative from stable.
Furthermore, AM Best has downgraded the FSR to B++ (Good) from A- (Excellent) and the Long-Term ICR to “bbb+” from “a-” of United Heritage Life Insurance Company. The outlook of the Long-Term ICR has been revised to negative from stable while the outlook of the FSR remains stable.
The rating actions on these entities reflect a change in their enterprise risk management (ERM) assessments to marginal from appropriate following the imminent liquidation order for Merced, as modelled exposures proved insufficient in estimating overall capital at risk after an extraordinary catastrophic event.
Merced also faced a concentration of exposures and inadequate reinsurance protection. This raised concerns at AM Best regarding the overall adequacy of the organization’s ERM framework, and as a result, the ERM assessment has been lowered at all operating subsidiaries under United Heritage Financial Group. The Long-Term ICR downgrades for United Heritage Property & Casualty and Sublimity also reflect the removal of lift received from the life company, given the lack of support for Merced.
The Long-Term ICR outlook revisions to negative reflect the ongoing regulatory and operational risks arising from damage to the companies’ reputation caused by the recent events of a member company. These Long-Term ICR outlooks further reflect AM Best’s concerns regarding the strategic importance and support of the property/casualty operations in United Heritage Property & Casualty’s overall business model and profile.
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