CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - MARCH 26, 2012 12:00 AM (EDT)
A.M. Best Co. has placed the financial strength rating (FSR) of B (Fair) and the issuer credit rating (ICR) of “bb” of Commercial Travelers Mutual Insurance Company (Commercial Travelers) (Utica, NY) under review with negative implications.
The rating action reflects Commercial Travelers’ weakened financial position and the recent announcement that it has signed a Letter of Intent to affiliate with National Guardian Life Insurance Company (NGL). As part of the potential affiliation, NGL would provide Commercial Travelers with $5 million in capital in the form of surplus notes, and intends to coinsure a portion of the company’s accident and health business, which would strengthen Commercial Travelers’ balance sheet and reduce its risk profile. Under the plan, NGL also would assume control of the company’s board of directors as well as hold some officer positions in the company. Long term, the affiliation could potentially lead to the demutualization and acquisition of Commercial Travelers by NGL. However, at this time no definitive agreement has been signed.
Commercial Travelers’ capitalization and operating trends have declined considerably over the past few years. Surplus has been negatively impacted by operating losses tied to its student medical business, high expense structure, as well as the company’s need to fully fund its pension account, which is now frozen. The potential affiliation with NGL would create economies of scale and promote operational efficiency that Commercial Travelers could not achieve on its own.
The ratings will remain under review while Commercial Travelers works towards a potential affiliation with NGL. Should this affiliation, which includes a near-term contribution of $5 million in surplus notes from NGL and a co-insurance agreement for a portion of Commercial Travelers' business, not move forward on a timely basis, a multiple level downgrade will likely occur. If a definitive agreement to partner is signed between the two mutual companies, A.M. Best will re-evaluate Commercial Travelers' under review status.
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. Key criteria utilized include: “Understanding Universal BCAR”; “Understanding BCAR for Life/Health Insurers”; and “Risk Management and the Rating Process for Insurance Companies.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.