The outlook for the FSR is stable, while the outlook for the ICRs has been revised to negative from stable.
The ratings of UFF Mutual are based on a consolidation of the company with UFB Casualty, which it reinsures with 100 percent quota share reinsurance. The downgrading of the ratings is due to a significant decrease in risk-adjusted capitalization and unfavorable operating performance in 2012. In addition, UFF Mutual's earnings over the last five years have been below
These negative rating aspects are offset in part by adequate risk- adjusted capitalization that supports the current ratings and by an excellent business profile in the
The ratings of UFF Mutual may be further downgraded if operating performance does not improve and meet expectations or if there is a further weakening in risk-adjusted capitalization. The outlook on the ICR may be stabilized by an improving earnings trend that leads to capital appreciation.
The ratings affirmation of UFF Life acknowledges the company's strong risk-adjusted capitalization, which is the result of positive operating earnings and an investment portfolio with overall good credit quality. UFF Life also possesses a stable liability profile as interest-sensitive reserves as a percentage of total reserves are significantly lower than the industry average.
UFF Life does have elevated holdings of commercial mortgages, which represents an amount in excess of capital and surplus. Sound underwriting practices, low loan to value ratios and diversification by property type and geographic region partially mitigate this exposure. UFF Life also faces exposure to geographic concentration risk, as most of its business is transacted in the
UH Life possesses a strong risk-adjusted capitalization, an investment portfolio with good credit quality and increased access to more geographic markets. Partially offsetting factors include the company's modest contribution to enterprise results, variability in net income and modest premium production.
UFF Life and UH Life are well positioned for their ratings. Factors that could lead to downward ratings pressure include erosion of capital from operating and investment losses, increased exposure to interest rate risk and capital requirements from other entities within the