Moody's Lowers Atlantic Mutual Ratings
NU Online News Service, Oct. 29, 9:57 a.m. EST?Moody's Investors Service has lowered financial strength and surplus notes ratings of the Atlantic Mutual Companies, concluding its ratings review of the New York-based insurer from last month.
The ratings agency said the downgrade involves Atlantic Mutual's insurance financial strength rating, which was lowered to "Baa3″ from "Baa1." Also affected by the downgrade is $100 million of 8.15 percent surplus notes due February 2028, which was lowered to "Ba3″ from "Ba1." Moody's noted the company now has a "developing" outlook status.
Commenting on the ratings action, Jim Bartie, an analyst at Moody's in New York, said a series of events led to the downgrade. "It ultimately came down to the capital issue and the insurer's capital strength, but the reason the company needed the capital was underwriting losses from the soft market," Mr. Bartie told National Underwriter.
"The way we view it, those businesses from the soft market caused Atlantic Mutual to purchase more reinsurance. Given their mutual-company form, one of the key sources of capital for them is the reinsurance market," he commented.
Mr. Bartie said the next event that occurred was that, for various reasons, Atlantic Mutual decided to commute some of that reinsurance, which caused acceleration of some of the losses.
Furthermore, Mr. Bartie said the insurer's decision last month to sell renewal rights for most of its commercial lines inland marine and ocean cargo businesses could create some disadvantages for the company.
Selling renewal rights for these businesses to Travelers Property Casualty Corp. "helped raise some capital immediately," he noted. "But the tradeoff there is that, going forward, it reduces the insurer's business diversification," said Mr. Bartie.
He added, "You can also see that in a positive way: it now focuses the company in its two main lines of business, commercial business and the personal lines business."
Moody's downgrade of Atlantic Mutual follows a ratings action from another major firm earlier this month.
On Oct. 7, A.M. Best Company lowered the insurer's financial strength rating to "B-double-plus" (Very Good) from "A-minus" (Excellent) and downgraded the debt rating of the insurer's existing $100 million 8.15 percent surplus notes due Feb. 2028 to "double-b-plus" from "triple-b."
Best cited a number of factors for its downgrades, including the lower-than-expected level of new capital raised by Atlantic Mutual, its historically weak underwriting and operating performance, and continued adverse prior-year loss reserve development.
Peter Scott, spokesperson at Atlantic Mutual, said his company is continuing to explore a variety of options to further boost its capital. "We are trying to move as quickly as possible on this," he said.
Mr. Scott also noted that the insurer has recently commissioned an independent study about its environmental reserves to prove that the insurer's liability is below the industry level. "This was one of the issues in the A.M. Best downgrade. We also completed a similar study this year on our asbestos reserves, which showed our exposure was much lower than the industry level," he told National Underwriter.
The company, he said, is "continuing to communicate its financial soundness to agents and policyholders."
"For instance, one of the key measures to look at is the ratio of net premiums written to policyholders surplus," Mr. Scott explained, "and our ratio is in line with the overall industry, and it's even comparable to some of our A-rated competitors. So we continue to get very strong support from our agents and policyholders. Our retention levels remain very high."
Mr. Scott acknowledged, though, that on larger commercial accounts, not having the A-minus rating is "more problematic."
"For these accounts, we are working with our agents closely to work on solutions that can bridge the gap between now and when we can regain the A-minus rating," he said.
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