A.M. Best Downgrades Frontier Insurance Group To B.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--March 17, 2000 A.M. Best Co. has downgraded to B (Fair), and removed from under review, the financial strength ratings of all of the insurance subsidiaries of holding company Frontier Insurance Group, Inc., Rock Hill, N.Y., from B++ (Very Good). The subsidiaries are Frontier Insurance Co., United Capitol Capitol, seat of the U.S. Congress Capitol, seat of the U.S. government at Washington, D.C. It is the city's dominating monument, built on an elevated site that was chosen by George Washington in consultation with Major Pierre L'Enfant. Insurance Co., Frontier Pacific Insurance Co., Western Indemnity Insurance indemnity insurance Managed care A type of health insurance in which a Pt can choose the hospital and provider, and the insurer reimburses the Pt or provider for a set percentage of the cost, minus deductibles and co-payments Co. and Regency Regency, in British history, the period of the last nine years (1811–20) of the reign of George III, when the king's insanity had rendered him unfit to rule and the government was vested in the prince of Wales (later George IV) as regent. Insurance Co. This action follows A.M. Best's review of the holding company's and its subsidiaries' year-end financial results; their financial condition following deployment of $160 million of proceeds from the January 2000 sale of the Lyndon Insurance Group; and Frontier's bank agreement, which recently was amended to resolve certain debt covenant violations. The downgrade Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. reflects the companies' poor capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. and the weak financial condition of the parent holding company, which has high financial leverage and marginal near-term liquidity and financial flexibility. Despite receiving approximately $80 million from the sale of Lyndon Insurance, the capitalization of the insurance operations is considered vulnerable because of its high reserve and premium leverage and A.M. Best's concerns over ongoing reserve development. While an additional $75 million of the Lyndon sale proceeds were used to repay bank debt, A.M. Best believes that the bank agreement has been amended to be more restrictive, while Frontier's financial leverage remains high. As a result, expected additional asset sales are necessary to meet Frontier's near-term holding company obligations. The amended bank agreement includes a revised coverage calculation, that leaves little margin for unfavorable operating results or additional future adverse reserve development. This risk factor is critical given chronic adverse reserve development that has broadened to include some of their recently expanded specialty programs. The companies' weakened weak·en tr. & intr.v. weak·ened, weak·en·ing, weak·ens To make or become weak or weaker. weak  en·er n. financial condition is the result of
aggressive growth and significant under-pricing predominantly pre·dom·i·nant adj. 1. Having greatest ascendancy, importance, influence, authority, or force. See Synonyms at dominant. 2. in medical malpractice Improper, unskilled, or negligent treatment of a patient by a physician, dentist, nurse, pharmacist, or other health care professional. as well as under-reserving. This resulted in sizable siz·a·ble also size·a·ble adj. Of considerable size; fairly large. siz a·ble·ness n. back-to-back reserve strengthenings in 1998 and 1999, largely related to
physician medical malpractice. Since 1997, Frontier Insurance Co.'s
surplus has dropped $77 million--or 27.8%--despite $140 million of
capital contributions; holding company leverage has increased; and the
parent company's stock market valuation has dropped significantly
limiting its financing options.
A.M. Best believes that the weak position of the overall enterprise poses financial risk to all of its members, including United Capitol Insurance Co. whose individual capitalization and operating performance are excellent. Adverse reserve development and competitive market conditions have impacted the operating performances of Frontier Pacific Insurance Co. and Western Indemnity Insurance Co. The financial strength of Regency Insurance Co. is susceptible to catastrophes due to its rapid growth in concentrated catastrophe-prone territories. Frontier Insurance Group Inc. is actively pursuing additional asset sales to provide holding company liquidity and/or bolster the capital of Frontier Insurance Co. If earnings improve, these sales would stabilize stabilize See peg. the group's current rating. However, failure to execute these plans, or a continuation of poor operating performance, may result in further downward ratings adjustments. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
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