A.M. Best affirmed the "A-minus" financial strength ratings of Bermuda-based Quanta Reinsurance Ltd. and its subsidiaries, removing the ratings from review and assigning a negative outlook.
Best last week cited the completion of Quanta common stock and preferred share offerings to support the ratings actions. The Oldwick, N.J.-based rating firm said the company's capital raising effort now supports the group's current ratings.
Best said the ratings, in addition to considering the capital raising efforts, also considered recent senior management changes and the strategic initiatives being implemented to allocate capital to business lines supported by specialized underwriting expertise.
After Quanta reported an initial estimate of $42-to-$58 million in losses from hurricanes Katrina and Rita in early October, Best put the Bermuda-based company's rating under review. Reacting to the Best decision, Quanta announced it would curtail its writings in property businesses.
With a revised hurricane loss estimate of $68.5 million coming later in the month, the company reported $59.1 million net loss on its bottom line for the third-quarter.
Explaining the results during the third-quarter earnings conference call, then chief executive Tobey Russ said that Quanta would focus on specialty lines, discontinuing writing new property business.
In November, Quanta announced Mr. Russ' resignation and the appointment of Robert Lippincott III as its interim CEO.
Quanta recently accelerated the reduction of its writings of reinsurance property and technical property business–largely through portfolio transfers–and deemphasized the writing of casualty reinsurance business–in part, through a reinsurance commutation, Best noted.
The group's reduced property book, in combination with expected enhanced reinsurance coverage, effective Jan. 1, 2006, would substantially reduce the carriers' net exposure to catastrophe losses and lower its risk-adjusted capital requirements, Best said.
While Best said it expects Quanta's profitability to be substantially improved in 2006, it noted that positive rating factors are offset by the significant challenges and uncertainties associated with the successful execution of the carrier's new business plans and its ability to diversify and grow its businesses. Best added that in the first two years of operations, Quanta fell far short of profitability and capital level projections.
Significant changes in business and senior management (including the recent appointment of Mr. Lippincott), while viewed favorably for the long term, have created near-term uncertainties, Best said.
Mr. Lippincott's November appointment as interim CEO prompted him to relinquish a position as a member of the board's Audit Committee, because he is no longer considered an independent director–setting in motion a search for an additional independent director.
Yesterday, Quanta announced that it faces an additional challenge with respect to the make-up of the audit committee. It reported that Wallace L. Timmeny, 68, is retiring from service on Quanta's board of directors and committees, effective Dec. 31.
Quanta notified NASDAQ regarding the company's status of noncompliance. The Audit Committee must be comprised of three independent directors. The committee now has two independent members with Mr. Timmeny's resignation.
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