OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has downgraded the Financial Strength Rating (FSR) to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb-” from “bbb” of Universal Life Insurance Company (Hato Rey, PR) (Universal Life). Concurrently, AM Best has maintained the under review with negative implications status on these Credit Ratings (ratings). AM Best also has maintained the under review with negative implications status for the FSR of A- (Excellent) and the Long-Term ICR of “a-” of Universal Insurance Company (PR) (UIC) (Guaynabo, PR). Additionally, AM Best has maintained the under review with negative implications status for the FSR of B++ (Good) and the Long-Term ICR of “bbb+” of Universal North America Insurance Company (UNAIC) (Arlington, TX).

The ratings reflect Universal Life’s balance sheet strength, which AM Best categorizes as adequate, as well as its strong operating performance, limited business profile and marginal enterprise risk management (ERM). The rating actions on Universal Life – the life and annuity operations of the Universal Group, Inc. (Universal); the ultimate parent, are based on a single downward notch revision in AM Best’s balance sheet strength assessment.

AM Best believes that Universal Life’s approval and replacement of a new reinsurer is taking longer than expected. Owing to the complexity of this phase of the recapture initiative, the extension has elevated execution risk, delaying the organization’s ability to cede the in-force fixed annuity business before year-end.

The proper valuation of these securities is critical to maintaining a timely integrated process, which also requires the qualified opinions of three investment and banking operating entities before a new reinsurer can be selected. While these actions are occurring simultaneously, the insurance regulators in Bermuda and Puerto Rico, as well as the North Carolina rehabilitator, have not indicated that they would disallow the recapture.

The ratings of UIC and UNAIC were placed under review with negative implications on Aug. 23, 2019, based on a downward revision in AM Best’s assessment of the organization’s ERM program to marginal. The rating downgrades were driven by a demonstrated weakness in the organization’s ERM program as it applies to risks associated with Universal Life, UIC’s wholly owned subsidiary. While Universal Life is now being downgraded based on an unfavorable change in the balance sheet assessment, the ratings for the property/casualty parent remain under review with negative implications.

AM Best will continue to monitor the impacts of these initiatives relating to the recapture and redeployment of the Trust, particularly as it impacts the balance sheet assessment of the consolidated organization. The ratings will remain under review until AM Best’s determines the ultimate effectiveness of these initiatives.

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