A.M. Best Co. has downgraded the financial strength rating to E (Under Regulatory Supervision) from C++ (Marginal) of Wasatch Crest Mutual Insurance Company (WCM).
The rating reflects the Utah Insurance Department’s seizure of WCM on July 11, and the filing of a petition to liquidate the company along with a former affiliate, Wasatch Crest Insurance Company (WCI) (both of Salt Lake City). The petition for liquidation is pending.
In October 2002, WCM learned that WCI, which reinsured a substantial amount of WCM’s business, may be or determined to be insolvent. As WCI’s financial statement at year-end 2002 did indicate an insolvent position, WCM reduced its ceding credit by $8.3 million, representing that portion of an estimated $12.8 million of total incurred claim liabilities that WCI would not be able to pay to WCM.
After booking the $8.3 million loss associated with the insolvency of WCI, WCM would have reportedly been deemed insolvent at year-end 2002, were it not for a substantial capital infusion of over $15.2 million from an outside investor. This contribution was in the form of a Surplus Contribution Note, approved by the Utah Insurance Department on Dec. 30, 2002, and booked as an admitted asset in the company’s 2002 Annual Statement.
With this capital infusion, WCM was authorized to begin writing
workers’ compensation business again effective March 1, 2003. On March 26, 2003, A.M. Best upgraded WCM’s financial strength rating to C++ (Marginal) from D (Poor), to reflect the company’s improved capitalization as reported at year-end 2002.
On April 1, 2003, WCM entered into a reinsurance treaty with syndicates of Lloyd’s of London and began writing workers’ compensation policies on that day.
However, upon further review of the bank records related to the Surplus Contribution Note, the Utah regulators, in conjunction with WCM, discovered that the capital never had been put into a WCM account, prompting the seizure on July 11, 2003, and filing for the liquidation on July 15, 2003.
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