A.M. Best Co. announced it has downgraded the financial strength rating to C++ (Marginal) from B (Fair) and issuer credit rating to “b” from “bb” of Gramercy Insurance Co. (GIC) in Dallas, Texas. The outlook for both ratings is negative.
The rating’s agency said its actions reflect GIC’s weak operating performance driven by increased underwriting losses and strong premium growth, which considerably increased underwriting leverage and weakened overall capitalization.
The ratings also reflect GIC’s increased dependence on reinsurance to support its operations given the company’s significant premium growth in recent years, the execution risk associated with re-focusing its operations and the challenges associated with achieving profitability projections particularly with the competitive market conditions.
Partially offsetting these negative rating factors are GIC’s recent management initiatives intended to improve its performance over the near term. GIC intends to exit its Louisiana based non-standard auto line effective Aug. 31, 2012, along with possibly non-renewing unprofitable portions of its trucking line.
The company previously placed 100 percent quota share reinsurance on both of these lines, effective Sept. 1 and Oct. 1, 2011, respectively. While the additional reinsurance provided some surplus aid, the company’s already high dependence on reinsurance was further increased.
The outlook acknowledges GIC’s poor operating performance, which further weakened its capitalization, as well as the challenges associated with profitably re-focusing the company’s operations given its increased reinsurance utilization over the near term.
Gramercy is a commercial property/casualty insurance company with roots in the motor cargo industry. According to its website, Gramercy is owned by Benchmark Holdings.
Source: A.M. Best