Fitch Affirms Atlantic Mutual's 'BBB-' IFS Rtgs, Downgrades Notes.Business Editors
CHICAGO--(BUSINESS WIRE)--May 3, 2004
Fitch Ratings Fitch Ratings
An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. today affirmed af·firm
v. af·firmed, af·firm·ing, af·firms
1. To declare positively or firmly; maintain to be true.
2. To support or uphold the validity of; confirm.
v.intr. the 'BBB-' insurer financial strength (IFS) ratings of the Atlantic Mutual Companies (AMC (Advanced Mezzanine Card) See AdvancedTCA. ) and downgraded Atlantic Mutual Insurance Company's surplus note rating to 'B+' from 'BB-'. In addition, all ratings have been removed from Rating Watch Negative. A complete list of companies and ratings appears below. The Rating Outlook is Negative.
Fitch placed the ratings on Rating Watch Negative following AMC's December 2003 announcement that it was selling the renewal rights to its commercial business to OneBeacon Insurance Company (OneBeacon). The ratings were placed on Rating Watch due to Fitch's concern about AMC's ability to achieve expense reductions commensurate com·men·su·rate
1. Of the same size, extent, or duration as another.
2. Corresponding in size or degree; proportionate: a salary commensurate with my performance.
3. with the premium reduction that would result from the sale. AMC completed the sale on March 31, 2004. Combined with a previous sale of its marine business, AMC has now disposed of 65% to 75% of its 2002 premium base. AMC is now a regional personal lines insurer focused on serving the affluent market.
The affirmation A solemn and formal declaration of the truth of a statement, such as an Affidavit or the actual or prospective testimony of a witness or a party that takes the place of an oath. An affirmation is also used when a person cannot take an oath because of religious convictions. of the IFS ratings reflects the significant, timely and appropriate action taken by AMC to reduce its expense base commensurate with the anticipated reduction in written premium. AMC reduced its workforce by approximately 23% in February 2004 and transferred another 28% to OneBeacon upon the close of the commercial lines sale. AMC has planned additional workforce reductions as residual commercial and marine reserves run off. AMC is also in the process of reducing its real estate commitments by selling, subletting The leasing of part or all of the property held by a tenant, as opposed to a landlord, during a portion of his or her unexpired balance of the term of occupancy.
A landlord may prohibit a tenant from subletting the leased premises without the land-lord's permission by or canceling leases on unneeded properties.
To date, AMC's personal lines premium levels have held up well. While new personal insurance submissions have declined somewhat, some decline was anticipated and renewals have remained good.
In assigning the Negative Rating Outlook, Fitch believes that AMC still faces significant execution risk as it must retain its personal lines premium base while continuing to reduce its workforce and real estate expenses. Fitch expects a moderate amount of restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). costs for personnel and real estate in 2004, while 2005 is likely to be the first year that is not significantly affected by unusual items.
In addition to the commercial lines sale, AMC also strengthened reserves, including 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 (A&E) reserves, considerably in 2003, which resulted in a statutory net loss of $136 million. Fitch's prior analysis had indicated the need for a significant reserve change and that need has already been reflected in Fitch's previous rating actions. While the reserve action resulted in a significant net loss for the year, and a commensurate reduction in surplus, it greatly improved the adequacy of AMC's reserves.
The downgrade Downgrade
A negative change in the rating of a security.
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. of the surplus notes reflects AMC's negative interest coverage in 2003 and expectations of modest coverage for 2004 and 2005. The downgrade also considers AMC's high, and increasing, financial leverage as surplus notes now represent approximately 36% of AMC's surplus at year-end 2003.
Additionally, AMC continues to unwind Unwind
1. The closure of an investment position.
2. The reconciliation of an error previously unseen by a brokerage house.
1. Sometimes referred to as closing out a position. various finite risk 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. policies upon which it had previously relied to support earnings and surplus. Although unwinding these contracts will cause AMC to recognize some current period accounting losses, AMC's economic profits will be better without them in the long run and the quality of its reported earnings will be much better.
The changes to AMC's ratings are listed below:
Entity/Issue/Type Action Rating/Outlook Atlantic Mutual Insurance Company --Insurer financial strength Affirm 'BBB-'; --Rating Watch Remove from 'Negative'; --Rating Outlook 'Negative'. Centennial Insurance Company Atlantic Lloyd's Insurance Company of Texas --Insurer financial strength Affirm 'BBB-'; --Rating Watch Remove from 'Negative'; --Rating Outlook 'Negative'. Atlantic Mutual Insurance Company --Surplus note Downgrade 'B+'; --Rating Watch Remove from 'Negative'.