A.M. Best has removed from under review with negative
implications and affirmed the financial strength rating of B+ (Good) and
the issuer credit ratings of "bbb-" of Public Service Insurance
Company (Chicago, IL) and its affiliates, Paramount Insurance
Company (New York, NY) and Western Select Insurance Company (Los
Angeles, CA) (collectively referred to as Magna Carta Companies),
which operate through an intercompany pooling reinsurance agreement. The
outlook assigned to the ratings is negative.
Following receipt of an executed adverse development cover (ADC)
reinsurance contract, which substantially improved Magna Carta
Companies' risk-adjusted capital level, the ratings were removed from
under review. The negative outlook is based on A.M. Best's concerns with
the lack of clarity regarding the Magna Carta Companies' risk appetite
and business strategy, which has contributed to its below-average
underwriting and operating results in recent years. A.M. Best expects
management will focus on these critical issues to return the group to
profitability in the near term.
The rating affirmations reflect the organization's supportive
risk-adjusted capitalization, commercial market knowledge and focus on
low hazard business. These positie rating factors are largely offset by
Magna Carta Companies' weak operating performance throughout the recent
five-year period, including its pre-tax operating losses for 2009 and
2013, which were driven by adverse loss reserve development on prior
accident years, the impact of weather-related losses and the need for
improved risk controls.
Magna Carta Companies' operating performance deteriorated significantly
during the fourth quarter of 2013, due to a $57 million charge to
strengthen reserves, requiring implementation of the ADC, which covers
100% of net losses within the ADC coverage limit. Approximately $31.9
million of the group's reserve strengthening actions were related to its
workers' compensation line of business. Inclusive of the benefit of the
additional reinsurance protection, Magna Carta Companies' overall
risk-adjusted capitalization adequately supports its current obligations
and those anticipated by its near-term business plans.
Negative rating actions could occur if there is further significant
deterioration in Magna Carta Companies' risk-adjusted capital position.
Positive rating actions are not expected in the near term, although
stabilization of the organization's underwriting and operating
performance measures, as well as the implementation of improved risk
controls, would be necessary prior to any positive rating actions.
The methodology used in determining these ratings is Best's Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best's rating process and contains the different rating criteria
employed in the rating process. Best's Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS
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