A.M. Best Co. has affirmed the financial strength ratings of “B++” (very good) and assigned issuer credit ratings of “bbb” to both Lake Forest, Ill.-based Trustmark Insurance Co. and Trustmark Life Insurance Co.
At the same time, A.M. Best has assigned a debt rating of “bb-” to Trustmark Group Inc.’s issuance of $75 million trust preferred securities on June 30, 2005, maturing in 2035. The securities have a floating rate equal to the three-month LIBOR for the related quarter, plus a margin of 3.55 percent. All ratings have a negative outlook.
Earlier this year, there was an unfavorable interim ruling by an arbitration panel related to Trustmark’s participation in a troubled workers’ compensation reinsurance pool dating back to 1997. The negative outlook reflects the exposure related to this arbitration, which was in reference to a particular reinsurance treaty entered into by another reinsurer with an insurance carrier that was eventually seized by the California Department of Insurance.
Furthermore, the direct reinsurer on the agreement is currently in litigation with Trustmark to ultimately recover a portion of the estimated losses under the contract. Due to the potential severity of the arbitration outcome and the exposure to ongoing litigation, A.M. Best believes, under the worse case scenario, the financial strength of the organization could be adversely impacted. A.M. Best’s ratings assume a worst case scenario relative to this matter. Additionally, both the remaining phases of the arbitration and the reinsurer dispute will likely linger for an unknown period of time and will continue to act as a distraction and resource drain on Trustmark.
A.M. Best believes the trust preferred offering enhances Trustmark Group Inc.’s financial flexibility and enables it to better withstand any adverse outcomes from ongoing reinsurance disputes. Additionally, Trustmark’s improved earnings should provide solid interest coverage, though it could be strained by the ultimate outcome of various comp matters. The organization’s total debt-to-capital ratio at the close of this transaction will be approximately 22 percent.
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