|[July 25, 2014]
A.M. Best Downgrades Ratings of Preferred Contractors Insurance Company Risk Retention Group, LLC
OLDWICK, N.J. --(Business Wire)--
A.M. Best has downgraded the financial strength rating to B
(Fair) from B+ (Good) and the issuer credit rating to "bb" from "bbb-"
for Preferred Contractors Insurance Company Risk Retention Group, LLC (PCIC)
(Billings, MT). The outlook for both ratings has been revised to
negative from stable.
The ratings reflects PCIC's deteriorating risk-adjusted capitalization
and uncertainty surrounding its volatile operating performance given the
multiple and significant changes in reinsurance arrangements in recent
years. These concerns are amplified by the sizable adverse loss-reserve
development recorded during 2013 on prior accident years, sizable growth
since 2011 and relatively weak management controls. The negative outlook
on the ratings reflects A.M. Best's concerns regarding the adequacy of
the company's loss reserves, relatively weak capitalization and
uncertainty over future underwriting and operating results.
Partially offsetting these negative factors are PCIC's positive
unerwriting results recorded since 2011. Furthermore, an adverse
development cover was put into place with London market reinsurers on
Dec. 31, 2013, to protect against additional loss development. A quota
share reinsurance treaty, effective Jan. 1, 2014, was also placed with
London market reinsurers to reduce PCIC's net underwriting leverage.
A.M. Best will closely monitor quarterly performance of PCIC. Any
material negative deviation from the business plan in terms of
management, operating profitability and risk profile, or a decline in
its risk-adjusted capitalization could result in negative rating
pressure. Factors that could lead to positive rating movement are
evidence of sustained favorable operating performance and credit metrics
that improve risk-adjusted capitalization over the long term.
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.
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