Quanta Capital Holdings today became the second Bermuda-based company to suffer a dangerous cut below an "A-minus" rating level in recent weeks, prompting the company to announce a review of alternatives including a possible sale.
A.M. Best Co. downgraded the financial strength ratings of all insurance and reinsurance operations of Quanta to "B-double-plus" (very good), also lowering various credit ratings. With the cut, the Oldwick, N.J.-based rating agency also placed all ratings under review with negative implications.
The downgrade follows Quanta's report of a fourth-quarter 2005 net loss of $40-to-$45 million, also reported today, which Best said included "unexpected loss reserve development" for Hurricanes Katrina and Rita, as well as other actuarial reserve adjustments and reported charges.
In its earnings announcement, Quanta said fourth-quarter 2005 results include $12 million of expenses associated with Hurricane Wilma; $10.2 million of additional costs related to Hurricanes Katrina and Rita; $5.5 million related to a previously reported environmental loss; and $8-to-$13 million of general reserve strengthening.
Bob Lippincott, Quanta's interim chief executive officer, said Quanta's fourth- quarter underwriting results "clearly were not acceptable and do not represent the changes we are putting in place."
Among the changes initiated by Quanta since it began its struggle to keep its rating at "A-minus" last October, were capital raising initiatives, a decision to curtail writing property business, and management changes that included the resignation of former Chief Executive Officer Tobey Russ.
In late December, Best affirmed the "A-minus" ratings in response to the successful completion of common stock and preferred share offerings to raise capital supportive of those ratings.
But, with today's announcement, even those capital raising actions fell short.
James Ritchie, Quanta's chairman, said: "Despite our total capital of approximately $520 million at Dec. 31, 2005, our financial strength ratings will be downgraded. In anticipation of the impacts of such action on our business, Quanta's management and board are moving expeditiously to implement…steps designed to preserve shareholder value."
He said that, among other things, a special committee of Quanta's board has engaged Friedman Billings Ramsey as financial advisor to help evaluate "strategic alternatives, including the potential sale" of some or all of Quanta's businesses.
Mr. Ritchie also said Quanta would continue to operate in business lines that don't require an "A-minus" rating, such as an engineering services company, a Lloyd's Syndicate, and certain program businesses.
"We will evaluate whether we can continue to operate our remaining business lines. We also will consider running off selected lines ourselves as an alternative to sale," Mr. Ritchie said.
Last month, PXRE, a Bermuda-based property reinsurer, also suffered cuts below the "A-minus" level from A.M. Best and other rating agencies, forcing that company to consider strategic alternatives.
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