General Agents Group Downgraded

A.M. Best Co. downgraded the financial strength rating of General Agents Group, Oklahoma City, Okla., to “B-” (Fair) from “B++” (Very Good) with a negative outlook. The rating action follows a review of the group’s year-end financial results and the recent announcement that it will discontinue its commercial lines business.

The downgrade reflects the deterioration in operating performance through 2001, which has significantly reduced capitalization, and the continued demands on the operating subsidiaries to fund the obligations of its parent, GAINSCO Inc. A.M. Bests is concerned about the potential for continued adverse loss reserve development, which will make it difficult to restore earnings and capitalization.

The group recorded underwriting losses in 2001 due to $20 million of adverse loss reserve development in the fourth quarter, which followed reserve charges of $26 million and $20 million in 1998 and 2000, respectively. The bulk of the reserve development has been related to adverse claims development on the group’s run-off of commercial automobile business. The compounded impact in 2001 on the group’s capitalization has been negative, as surplus has significantly declined from 2000.

A.M. Best believes the group’s capitalization over the near-term will be constrained by the run-off claims of commercial lines and future dividends that will be utilized to meet the holding company’s obligations.

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