A.M. Best Co. has downgraded the issuer credit ratings (ICR) to "c" from "ccc" and senior debt ratings to "c" from "ccc" of Kingsway Financial Services Inc (KFSI) and Kingsway America Inc. (KAI).
A.M. Best also has downgraded the financial strength rating (FSR) to C+ (Marginal) from B- (Fair) and ICR to "b-" from "bb-" of Kingsway Reinsurance Corporation (KRC) (Barbados) as well as the Mendota Group and its members, Mendota Insurance Company and its wholly owned subsidiary, Mendakota Insurance Company (both are domiciled in Eagan, MN). All the above ratings have been removed from under review with negative implications and assigned a negative outlook.
Additionally, A.M. Best has affirmed the FSR of D (Poor) and ICR of "c" of Universal Casualty Company (UCC). The outlook for both ratings is negative. (Please see below for a detailed listing of the debt ratings.) All companies are headquartered in Elk Grove Village, IL, unless otherwise specified.
The rating actions on the Mendota Group, KFSI, KAI and KRC follow A.M. Best's discussions with KFSI regarding the results of its research into various recapitalization strategies for the holding companies, which to date have yet to materialize. These discussions are in response to the holding company's year-end 2010 loss in equity of over $55 million, as well as its continued $19 million in equity losses through the second quarter of 2011. A.M. Best will continue to monitor management's efforts to recapitalize KFSI, KAI and the Mendota Group.
The ratings for KFSI and its affiliates recognize their weak risk-adjusted capitalization, above average financial and operating leverage, continued unprofitable earnings trends and the challenges they face from strong competitive markets, weak economic conditions, below average interest rates, declining premium volume and rising claims costs.
These concerns are partially offset by KFSI's actions to reorganize operations to improve efficiency and customer service; de-leverage its balance sheet and improve liquidity by selling assets for cash and reducing debt; improve performance by cancelling non-core lines of business; unprofitable agents and accounts; focus on core non-standard automobile insurance and consolidate management and back office operations.
The ratings for UCC reflect its severe adverse reserve development at year-end 2010, which caused risk-adjusted capitalization to not support its ratings after reserves were strengthened.
The following debt ratings have been downgraded:
Kingsway America Inc.—
-- to "c" from "ccc" on USD 125 million 7.5% senior unsecured notes, due 2014 (currently USD 27 million outstanding)
-- to "c" from "ccc" on CAD 74.1 million 7.12% senior unsecured notes, due 2015 (currently CAD 19.7 million of the related KLROC debt is in the possession of non-KFSI owners)
Kingsway Financial Services Inc—
-- to "c" from "ccc" on CAD 100 million 6% senior unsecured debentures, due 2012 (currently CAD 1.9 million outstanding)
All senior debt is unconditionally guaranteed by KFSI and KAI.
The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; "Rating Members of Insurance Groups"; and "A.M. Best's Ratings & the Treatment of Debt." Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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or
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Assistant Vice President
jeffrey.mango@ambest.com
or
Carole
Lovell, 908-439-2200, ext. 5445
Public Relations Associate
carole.lovell@ambest.com
or
Jim
Peavy, 908-439-2200, ext. 5644
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Relations
james.peavy@ambest.com
