A.M. Best Places Fremont Compensation A- -Excellent- Rating Under Review.OLDWICK, N.J.--(BUSINESS WIRE)--Aug. 30, 1999-- A.M. Best today placed the A- (Excellent) Best's Rating Best's rating A rating A.M. Best Co. assigns to insurance companies based on the company's ability to meet its obligations to its policyholders. of Fremont Compensation Group Inc., Glendale, Calif., and its seven pool members under review with negative implications. This rating action follows the announcement by Fremont General's announcement that it will take a $75 million after-tax charge in the third quarter related to net loss-reserve adequacy. The under review status and negative implications reflect an aggregation of A.M. Best's concerns within several areas, including reserve adequacy, decreased financial flexibility, the impact of their current reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. program and the ongoing workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. market pressures. While A.M. Best's concern with reserve adequacy does not reflect a concern with solvency, future earnings are expected to be dampened. The recent announcement, along with significantly reduced reserve-to-earned-premium levels in recent accident years relative to historical levels heightens A.M. Best's concern with Fremont's reserving trends. The implications also reflect concerns over the impact of reinsurance programs on underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. strategy and operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. . The collectibility of certain low-level reinsurance contracts has yet to be determined and at this point is not a major concern to Fremont's rating; however, while the disputes in the reinsurance market are resolved, A.M. Best expects a negative impact on cash flows. Additionally, the recent difficulties in estimating reinsurance recoverables is indicative of the added risk inherent in substantial reinsurance changes. Finally, the negative implications reflect the greatly reduced financial flexibility at the holding company level due to the subsequent reduction in market price. Of the $75 million after-tax charge, $50 million relates a lower level of recoveries than originally anticipated from reinsurance recoverables on 1998 and 1999 workers' compensation business. The remaining $25 million charge relates to recognition of an increase in asbestos asbestos, mineral asbestos, common name for any of a variety of silicate minerals within the amphibole and serpentine groups that are fibrous in structure and more or less resistant to acid and fire. and environmental claims within discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. . The rating will remain under review until A.M. Best can meet with management and gain comfort with the company's reserve adequacy, review its underwriting controls and further review Fremont's exposure to additional reinsurance recoverable issues. A.M. Best expects to meet with management over the next month. If these critical concerns are addressed adequately, it is likely the rating will be affirmed af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. . A.M. Best Co., established in 1899, is America's oldest and most widely recognized insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
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