Best’s News & Research Service - July 27, 2010 05:05 PM (EDT)
A.M. Best Downgrades Ratings of Business Alliance Insurance Company
OLDWICK, N.J. //BestWire// - A.M. Best Co. has downgraded the financial strength rating to B+ (Good) from B++ (Good) and issuer credit rating to “bbb-” from “bbb” of Business Alliance Insurance Company (BAIC) (San Bruno, CA). The ratings have been placed under review with negative implications.
The ratings of BAIC’s parent, Public Service Mutual Insurance Company (PSM), the lead member of the Magna Carta Companies (Magna Carta), as well as the other members, are unchanged.
The rating actions follow the unexpected outcome of a hearing held on July 26, 2010, in which the court ordered PSM to return shares of BAIC to its former owners within 60 days, despite the stated opposition to the ownership change by its former owners. The expectation was that the hearing would direct the parties to develop a schedule that would allow PSM to pay the former owners of BAIC a yet-to-be agreed upon value and for BAIC to remain with Magna Carta. This ruling presumably ends the long litigation that began in 2005 over a dispute concerning the terms of a proposed sale of the company from BAIC’s former parent, National Farm Financial Corporation, which is owned by the Chao Family Trust, to PSM. With this court ruling, BAIC will cease to benefit from the ownership of PSM, including intercompany reinsurance, infrastructure and management support.
The ratings of BAIC will remain under review until transfer of ownership is finalized. At that time, A.M. Best will likely remove the company from under review and either further downgrade or affirm the ratings following discussions with BAIC’s management regarding plans for the company.
For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at http://www.ambest.com/ratings/methodology.