Universal Underwriters Lowered

S&P lowered its FSR on Universal Underwriters Insurance Co. and its fully reinsured subsidiary, Universal Underwriters of TX, to “BBBpi” from “Api.”

The rating action is based on the company’s deteriorating capital position, high level of leverage, and volatility in operating performance. Based in Overland Park, Kan., UUI mainly offers insurance financial services to car dealerships and automotive-related businesses, licensed in all states (except Alaska) and the District of Columbia.

Among the major rating factors were: at year-end 2000, capitalization was marginal. The drop in surplus of 50.7 percent in 2000 to $219 million from $444 million in 1999 was caused primarily by the extraordinary dividends to stockholders. The company’s liquidity ratio of 79.1 percent and high leverage, as measured by premiums and liabilities to surplus (7.1 times), in the context of adverse business, financial, or economic conditions, is viewed as a rating factor. Finally, the company has had volatile returns with, for example, ROAs ranging from 3.8 percent to 12.0 percent for the years 2000 and 1999, respectively. This is viewed as a limiting factor.

Although the company is a member of Zurich Insurance Co. Group, the rating does not include additional credit for implied group support.