A.M. Best Downgrades Rating of Highlands Insurance Group.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--Nov. 19, 2001 A.M. Best Co. has downgraded the financial strength rating to C- (Weak) from B (Fair) of the Highlands Insurance Group, Inc., Lawrenceville, New Jersey Lawrenceville is a census-designated place and unincorporated area located within Lawrence Township in Mercer County, New Jersey. As of the United States 2000 Census, the CDP population was 4,081. Lawrenceville is located roughly halfway between Princeton and Trenton. . 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 group's weak capitalization, poor operating performance, regulatory constraints and significant near-term debt servicing requirements at its parent. The group's operating results have been plagued by substantial underwriting losses stemming from significant adverse loss reserve development. The bulk of the reserve development -- amounting to $48.0 million and $52.8 million in 2000 and through the first three quarters of 2001, respectively -- related to its core workers compensation, commercial multiple peril and commercial automobile lines of business. In an effort to improve operating performance and enhance capital, management has implemented a number of corporate-wide reorganizations and corrective actions A corrective action is a change implemented to address a weakness identified in a management system. Normally corrective actions are instigated in response to a customer complaint, abnormal levels if internal nonconformity, nonconformities identified during an internal audit or . A.M. Best remains concerned over the adequacy of the group's current rate structure on the impacted lines of business, as well as the potential for further adverse reserve development. The group's poor underwriting results, coupled with significant dividend requirements, have led to a substantial decline in its surplus base of approximately 51% since year-end 1998. Accordingly, the group has agreed to adhere to adhere to verb 1. follow, keep, maintain, respect, observe, be true, fulfil, obey, heed, keep to, abide by, be loyal, mind, be constant, be faithful 2. certain additional reporting requirements and to dividend limitations and has filed a plan with the Texas Department of Insurance. The elevated financial leverage at the group's parent, Highlands Insurance Group, has placed additional pressure on the group's already weak capital base through dividend requirements. The parent has outstanding $49 million in senior bank debt and approximately $60 million in convertible subordinated debentures subordinated debenture An unsecured bond with a claim to assets that is subordinate to all existing and future debt. Thus, in the event that the issuer encounters financial difficulties and must be liquidated, all other claims must be satisfied before . The bank debt matures on April 30, 2002, and is collateralized by the stock of its insurance subsidiaries. The group's on-going operating losses operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. have regularly triggered certain financial covenants of the bank agreement. Although the bank has waived these events of default through year-end 2001, their continued forbearance Refraining from doing something that one has a legal right to do. Giving of further time for repayment of an obligation or agreement; not to enforce claim at its due date. A delay in enforcing a legal right. is dependent upon the group's capital restructuring efforts. In addition, the weakened financial condition has caused state insurance regulators to limit dividend payments to the parent to $1 million in 2001, an amount that falls short of the group's $4 million annual interest obligations. Although there is sufficient cash at the parent to cover the short-fall in interest payments in the near-term, the group's available cash falls well short of the $49 million needed to pay off the bank debt at its maturity in April 2002. The group is actively working with two investment banks The following is a list of investment banks Financial conglomerates Large financial-services conglomerates combine commercial banking and investment banking, and sometimes insurance. to obtain additional capital to help meet its existing debt requirements. Nevertheless, there is no assurance that the group will have the resources to pay the bank debt when it comes due or that the lending banks or any other source would be willing to provide the resources to refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. the debt. 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. |
|
||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion