A.M. Best Co. has placed the financial strength rating of Berkeley Heights, N.J.-based Palisades Group under review with negative implications after the company announced it planned a $70 million acquisition of Proformance Insurance.

Palisades, which currently is rated "B-double-plus (Good)" by Best, said yesterday it would buy the stock of National Atlantic Holdings Corporation and its subsidiary, Proformance Insurance Company, based in Freehold, N.J., and take the company private.

The Oldwick, N.J.-based Best said its rating of "B-double-plus (Good)" for National Atlantic Holdings and its subsidiaries, including Proformance, is also under review.

While Palisades has had enormous success with acquisitions and integration, Best said it placed the company under review because of Proformance's volatile performance. It added that the acquisition cold result "in a modest deterioration in Palisades' risk-adjusted capitalization."

Proformance has been under Best review since Nov. 20 last year "due to the ineffectiveness of certain claims oversight processes" of bodily injury claims function and deterioration in the company's risk-adjusted capitalization.

Best said the inconsistent handling and reserving of those claims resulted in a $14.3 million increase in loss reserves in the third quarter of 2007, reducing risk-adjusted capitalization to a level below the minimum required for the company.

The rating service said it remains "somewhat concerned regarding overall management oversight" on this issue.

Best said the ratings would remain under review pending the close of the transaction and a meeting with management regarding business plans including anticipated integration and capital management strategies.

The deal is expected to be completed in the third quarter of this year.

Both companies employ about 250 people. In 2007 National Atlantic Holdings reported $179 million in premium written, and Palisades had $163 million in premium written.

Special Reports /

A.M. Best Puts Proformance, Palisades Under Review

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