Oldwick, NJ -(BusinessWire)- A.M. Best has downgraded the financial strength rating to B+ (Good) from B++ (Good) and the issuer credit ratings to “bbb-” from “bbb” of Public Service Insurance Company (Chicago, IL) and its affiliates, Paramount Insurance Company (New York, NY) and Western Select Insurance Company (Los Angeles, CA) (collectively referred to as Magna Carta Companies), which operate through an intercompany pooling reinsurance agreement. The ratings have been placed under review with negative implications pending receipt of an executed adverse development cover (ADC) reinsurance contract, which will substantially improve the group’s risk-adjusted capital level.
The rating downgrades reflect the significant deterioration in Magna Carta Companies’ operating performance during the fourth quarter of 2013, due to a $57 million charge to strengthen reserves. Approximately $31.9 million of the group’s reserve strengthening actions were related to its workers’ compensation line of business. To provide protection against further unexpected adverse reserve development, management plans to implement an ADC, which will cover 100% of net losses within the ADC coverage limit. Inclusive of the benefit of the additional reinsurance protection, Magna Carta Companies’ overall risk-adjusted capitalization adequately supports its current obligations and those anticipated by its near-term business plans. While risk-adjusted capitalization is expected to remain at a level that supports the current ratings in the near to mid term, A.M. Best is concerned about the lack of clarity regarding Magna Carta Companies’ risk appetite and business strategy, which has contributed to the below-average underwriting and operating results in recent years. A.M. Best expects management will focus on these critical issues to return the group to profitability in the near term.
The ratings have been placed and will remain under review pending receipt of the executed ADC, which A.M. Best anticipates will occur shortly.
Negative rating actions are likely should the ADC not be executed as anticipated. In the event that the ADC is completed as expected the outlook on the ratings will likely remain negative until the group’s underwriting and operating performance stabilizes and there is demonstrated improvement in risk controls.
Source: BusinessWire