A probe by New York authorities into the operations of Poughkeepsie, N.Y.-based Compensation Risk Managers led to a rating firm action yesterday against the firm's parent and other related companies.

Compensation Risk Managers, a third-party administrator for self-insured workers' compensation groups, is currently under investigation by the New York State Attorney General's Office and faces possible license suspension for failing to pay injured workers awards and submitting false information.

A.M. Best Co. in Oldwick, N.J., said it placed the financial strength ratings of “A-minus” (excellent) and issuer credit ratings of “a-minus” of Majestic Insurance Company and Twin Bridges Ltd. under review with negative implications.

Best said the rating actions reflected concern “over the potential impact on Majestic and Twin Bridges from the issues faced by their affiliate, Compensation Risk Managers LLC, and their ultimate parent, CRM Holdings Ltd.”

Concurrently, the rating firm placed the issuer credit ratings of “triple-b-minus” of CRM Holdings Ltd in Bermuda, Embarcadero Insurance Holdings Inc. San Francisco and CRM USA Holdings Inc. of Delaware under review with negative implications.

The firm also placed the debt rating of “double-b” of the trust preferred securities of CRM USA Holdings Inc. and the “double-b” of the surplus notes of Embarcadero Insurance Holdings Inc. under review with negative implications.

The rating firm noted that administrative charges had been brought by the New York Workers' Compensation Board, which could result in the possible revocation of the third party administrator license of CRM LLC in New York and potential fines and/or penalties against CRM LLC associated with the allegations.

Best said the under review status also reflects “the impact on the financial flexibility of CRM Holdings Ltd. due to the decline in the market value of its common stock following the announced charges, as well as the limited capital available through its insurance subsidiaries to support their anticipated growth.”

The rating firm added that 2007 capitalization levels at Majestic fell somewhat short of the requirement by A.M. Best for the ratings based on higher premium growth, partially attributable to previously self-insured business being written on a first-dollar basis.

Best said the ratings will remain under review until the impact of the charges against CRM LLC is evaluated and management can provide A.M. Best with updated information about the capitalization of CRM and its subsidiaries.

Best debt ratings that were placed under review with negative implications are:

o Embarcadero Insurance Holdings Inc.–”double-b” on $8 million LIBOR+ 4.2 percent surplus notes, due 2033.

o CRM USA Holdings Inc.–”double-b” on $35 million 8.65 percent junior subordinated debt securities, due 2036.

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