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FOR IMMEDIATE RELEASE
OLDWICK - APRIL 02, 2014 03:09 PM (EDT)
A.M. Best has downgraded the issuer credit rating (ICR) to "bbb" from "bbb+" and affirmed the financial strength rating of B++ (Good) of Founders Insurance Company (Founders) (Des Plaines, IL). Both ratings have been placed under review with developing implications as management considers several alternatives to address the company's decline in risk-adjusted capital.
The downgrading of the ICR reflects the significant reduction in Founders' policyholder surplus and risk-adjusted capitalization due to a substantial decline in operating profitability in 2013, driven by adverse loss reserve development. Since 2009, increased losses, including the adverse development on its general liability and liquor liability books of business, weather-related events and soft market conditions have negatively impacted Founders' results. Despite the actions taken by management to improve underwriting and operating performance, reported results have deteriorated beyond A.M. Best's expectations. Furthermore, A.M. Best believes it may take several years for Founders' results to show sustained improvement. Several alternatives for addressing Founders' capital level are under consideration, one of which would be including Founders within the Utica Pool.
These negative rating factors are partially offset by Founders' 2010 affiliation with Utica Mutual Insurance Company (Utica Mutual) (New Hartford, NY). In the first quarter of 2014, Utica Mutual contributed capital to stabilize the risk-adjusted capital position of Founders. Going forward, Founders is expected to benefit from Utica Mutual's underwriting expertise as well as cross-selling opportunities and expense consolidations as a result of its affiliation.
The ratings have been placed under review and will remain pending management's implementation of plans to address the decline in risk-adjusted capital at Founders. Further negative rating actions may be taken if the company's plans are not executed as expected. However, positive rating actions may occur if management's capital improvement plans are executed, meet A.M. Best's expectations and are supportive of higher ratings.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.