Ratings Roundup: Penn Treaty Network, Donegal, CIFG

Standard & Poor’s Ratings Services has revised its outlook on Penn Treaty Network America Insurance Co. (PTNA) to negative from stable; however, the rating agency also said that it affirmed its ‘B-‘ counterparty credit and financial strength ratings on the company. “The negative outlook reflects concerns about the company’s business profile and capitalization following the Aug. 21, 2008, announcement by PTNA’s parent company, Penn Treaty American Corp., that it provided notification of breach to its reinsurer, Imagine International Reinsurance Ltd. (Imagine), regarding its reinsurance of PTNA’s business issued prior to 2002,” S&P explained. “The notification followed Imagine’s advising PTA that it would not provide additional letters of credit under the reinsurance agreement, as Imagine believes that a regulatory risk event has occurred under the agreement. We expect that the dispute will be resolved through the arbitration provisions of the reinsurance agreement.” Credit analyst Neal Freedman added: “We believe that the dispute could hinder PTNA’s ability to write new business. This ability is critical to the company’s profitability, as these newer policies are likely priced much more profitably than the company’s older (business issued prior to 2002) block of business. Furthermore, an unfavorable arbitration outcome could have a materially adverse financial impact on the company’s statutory capitalization.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of the Pennsylvania-based Donegal Insurance Group and its members. Best also affirmed the FSR of ‘A’ (Excellent) and ICRs of “a” of Peninsula Insurance Group and its members, as well as the ICR of “bbb” of Donegal Group Inc. The outlook for all ratings is stable. Best stated: “The Group’s ratings are reflective of its excellent risk-adjusted capitalization, solid operating performance, conservative business strategies and well-established regional presence. Additionally, the affirmations acknowledge management’s adherence to underwriting discipline and rate adequacy despite the challenges of soft market conditions. Following a regional strategy approach, the Group’s sustained operating performance benefits from an innovative management team, brand name recognition and improved technology as demonstrated by its new automated claims handling and processing system. The ratings also recognize a diversified investment portfolio and prudent catastrophe risk management. Offsetting factors include the Group’s geographic concentration in the Mid-Atlantic region. As a result, earnings are exposed to volatility from weather-related events as well as changes in the regulatory, legal and competitive market environment.
Peninsula’s rating affirmations reflect its conservative underwriting leverage and solid operating performance derived from management’s underwriting and pricing philosophy. Peninsula’s operating performance is derived from solid underwriting results attributed to management’s underwriting discipline, pricing adequacy and strong agency relationships complemented by steady investment income.”

Standard & Poor’s Ratings Services has lowered its financial strength ratings on CIFG Guaranty, CIFG Europe, and CIFG Assurance North America Inc. (collectively CIFG, or the company) to ‘B’ from ‘A-‘. The ratings remain on CreditWatch, with the implications changed to developing from negative. “The downgrade is the result of delays in the company’s implementation of its restructuring plan and slow progress in its negotiations with counterparties of its collateralized debt obligations of asset-backed securities exposure,” explained credit analyst David Veno. S&P added: “If management is not successful in its negotiations to develop strategic alternatives for problematic credits in its insured portfolio, we believe the impaired financial position of the company could lead to regulatory intervention, in which case the rating could be further lowered. If management is successful in its negotiations and presents a viable business strategy for the company, the rating could be revised upward.”