A.M. Best Co. announced that it has downgraded the financial strength ratings of Acceptance Insurance Companies Inc.’s two operating subsidiaries, American Growers Insurance Company of Lincoln, Nebraska, to ‘C-‘ (Weak) from ‘B++’ (Very Good), and its affiliate, Acceptance Insurance Company, to ‘C-‘ (Weak) from B+ (Very Good).
Best’s action follows the same move by Standard & Poor’s announced yesterday (See IJ Website Nov.20), and for essentially the same reasons. Acceptance’s announcement of significant third quarter operating losses have resulted in what Best characterized as the “erosion in statutory surplus and the constrained financial flexibility of its publicly-traded parent company, Acceptance Insurance Companies Inc.”
That last observation is no longer quite true, as the New York Stock Exchange announced Wednesday that it had suspended Acceptance’s shares from trading, as they no longer met the NYSE’s listing standards. The shares could still trade in over-the-counter markets. They last closed at 55 cents on Tuesday, and did not open for trading yesterday.
As previously noted Acceptance troubles stem from greater than expected losses from crop insurance related to the prolonged drought in the Midwest. The situation has been compounded, said Best, by “the write-down of deferred tax assets at the parent company, certain cash flow strain and the significant erosion in AIF’s GAAP equity.”
“As a consequence, American Growers’ capital position has been so severely impacted that the company’s level of surplus and overall assessment of risk-adjusted capitalization is considered tenuous,” the bulletin continued.
Best said it had also considered the “uncertainty regarding the potential sale of American Growers’ crop business to Rain and Hail L.L.C. and Ace American Insurance Company and views the rating outlook as negative due to the tentative nature of the agreement and the adverse consequences to the company in the event the sale is not consummated.”
It added that, the rating action for Acceptance Insurance Company “reflects the company’s role within the group, its vulnerable risk-adjusted capitalization and the ongoing adverse loss reserve development reported during the second and third quarters of 2002.” It will continue to monitor the situation.
Topics AM Best
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