Best Downgrades Credit General After Failure to File Q2 Reports

September 28, 2000

On Sept. 22, A.M. Best Co. downgraded the financial strength rating on Credit General Insurance Company and Credit General Indemnity Company from “B++” (Very Good) to “C” (Weak) and placed the group under review with developing implications. Best reported that the group failed to file second-quarter financial statements.

The rating reflects Best’s “concerns about the group’s loss reserve position and the collectability of reinsurance recoverables.” Other factors in the downgrade were the group’s “below-average capitalization level, weak balance sheet, declining liquidity measures, dramatic growth in workers’ compensation business and the highly priced and competitive commercial-lines market.”

Kenneth Brown, director of communications for the Ohio Department of Insurance, said that no action had been taken against Credit General. “We are in the midst of conducting a financial examination in Ohio,” Brown said. “[Credit General] failed to file a quarterly statement, and we are working with them to find out what financial condition they are in. This is not an uncommon practice; we conduct financial exams with all our companies.”

On Sept. 15, Credit General temporarily ceased writing new business, but on Sept. 21, the Credit General companies signed a cut-through reinsurance agreement with AmTrust Financial Group through its subsidiaries. The arrangement gives Credit General access to additional surplus of $20 million, allowing it to resume writing new business immediately, according to Bryan Griffin, president of PRS Insurance Group Inc., Credit General’s parent.

A Delaware holding company formerly known as The Phoenix Insurance Group, PRS acquired Credit General in 1991. Credit General Insurance Company is a property/casualty carrier domiciled in Ohio that holds 50 admitted licenses, as well as E&S authority in Texas.

Credit General Indemnity Company, also an Ohio-domiciled p/c carrier, has admitted licenses in Ohio, California and Texas, and E&S authority in 17 states. Their products include workers’ compensation, specialty truck, contractors’ general liability, surety, multi-peril and agency rent-a-captive programs.

According to Best, PRS has experienced negative cash flow over the past two years, and at year-end 1999, the group maintained financial leverage of 32.6 percent, based on total debt to total capital. The rating drop began in June 2000, when Best lowered PRS’ rating from “A-” to “B++”.

PRS issued a statement in response that: “The Group’s current-year projected growth of approximately 25 percent is in line with past years in which both positive operating income and above average returns were generated. Moreover, this growth is largely due to the migration of an existing book of profitable workers’ compensation business away from a partnering carrier, to reduce front fees and to thereby further increase income. The Group continues to move toward issuing smaller policies in its largest line (workers’ compensation) as it intensifies its marketing to smaller customers via the Internet.”

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