AM Best has removed from under review with negative implications and downgraded the Financial Strength Rating to C- (Weak) from C++ (Marginal) and the Long-Term Issuer Credit Rating to “cc” (Very Weak) from “b” (Marginal) of Casualty Underwriters Insurance Company (CUIC) (Salt Lake City, UT). The outlook assigned to these Credit Ratings (ratings) is negative.

The ratings reflect CUIC’s balance sheet strength, which AM Best assesses as very weak, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.

The rating downgrades reflect continued erosion in CUIC’s policyholder surplus and overall level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Key balance sheet strength metrics have weakened further primarily due to CUIC expanding its business and overall risk exposure into several new states such as Oklahoma, Kansas, North Dakota and Idaho over the past few years and particularly through 2023. Net premiums increased by over 135% in 2023 alone, illustrating the magnitude of the growth, which in turn drove substantial increases to the company’s underwriting leverage measures.

While CUIC is still presently owned by Sheep Venture Company (SVC), a for-profit wholly owned subsidiary of the American Sheep Industry Association Inc. (ASI), the national trade association of the U.S. sheep and wool industries, SVC recently entered into a stock purchase agreement to sell CUIC to a set of affiliated investors.

The transaction is currently pending regulatory approvals and customary closing conditions. AM Best does not expect CUIC’s level of risk-adjusted capitalization to improve materially even following the close of the sale, hence the rating downgrades. Management continues to implement rate increases and refine underwriting guidelines, though the negative outlooks on the ratings consider the severe volatility in results over the past several years, as well as the uncertainty in the company’s ability to manage, control and support its growing book of business over the near-term.

The negative outlooks not only take into consideration the company’s sudden and material deterioration in risk-adjusted capitalization, but also the potential for regulatory action brought on by its failure to meet Utah’s minimum risk-based capital levels. Should this occur, or with further weakening in CUIC’s results, the ratings may be downgraded further.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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