A.M. Best Co. revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of A- (excellent) and issuer credit ratings (ICR) of “a-” of Blue Cross Blue Shield of Michigan (BCBSM) and Blue Care Network of Michigan.
The negative outlook reflects the decline in BCBSM’s capitalization, which was driven by deteriorating underwriting results, increased business transformation expenses and investment losses related to the severe downturn in the financial markets, the rating agency says.
Conseco Inc. and its subsidiaries
Last week, Moody’s announced it changed the outlook for Conseco Inc. to positive from negative. The latest ratings actions on the insurer come from A.M. Best, Fitch and S&P. A.M. Best Co. removed from under review with negative implications, and affirmed the FSR of B (fair) and ICR of “bb” of the life/health insurance subsidiaries of Conseco. Concurrently, A.M. Best removed from under review with negative implications and affirmed the ICR and senior debt rating of “b-” of Conseco. The outlook assigned to all ratings is negative.
Fitch Ratings affirmed all its ratings assigned to Conseco and its subsidiaries, and removed the ratings from rating watch negative. Fitch has assigned a negative rating outlook to the ratings. In addition, Fitch assigned a B-/RR6 rating to Conseco's new 7% convertible senior debt issue.
Standard & Poor's Ratings Services affirmed its CCC counterparty credit rating on Conseco Inc. and the BB- FSR on Conseco's insurance subsidiaries. S&P also revised the outlook to stable from negative.
A.M. Best’s rating actions follow Conseco’s recent announcement of its recapitalization plan, which includes the issuance of common shares as well as the exchange of debt. The debt portion commenced with a private offering of $293 million of 7.0% convertible senior debentures, which will be used to retire its outstanding 3.5% convertibles as they are tendered. This refinancing eliminates the September 2010 put option within the existing convertible notes, which A.M. Best views favorably.
Fitch’s negative outlook reflects its concern regarding the potential for higher than expected investment losses and its impact on Conseco's capital, earnings and ability to stay in compliance with the financial covenants in Conseco's secured bank facility.
And, S&P’s change in outlook reflects Conseco's improved financial flexibility in the short term following the execution of part of a recapitalization plan that exchanges the 3.5% debt maturing in 2010 with 7% debt that matures in 2016.
A.M. Best Co. assigned indicative ratings of “bbb” to senior unsecured debt, “bbb-” to subordinated debt and “bb+” to preferred stock, which may be issued under the recently filed and approved shelf registration statement of Fairfax Financial Holdings Ltd.
Concurrently, A.M. Best assigned a debt rating of “bb+” to CAD 250 million cumulative five-year rate reset preferred shares (Series C) of Fairfax. The outlook for all ratings is stable. Fairfax’s issuer credit rating of “bbb,” existing debt ratings and ratings of its insurance operating entities are all unchanged.
Newport Bonding and Surety Co.
A.M. Best Co. downgraded the FSR to B (fair) from B+ (good) and ICR to “bb” from “bbb-” of Newport Bonding and Surety Co. The outlook for all ratings is negative.A.M. Best’s rating actions reflect Newport’s weakened overall capitalization, which is reflective of poor operating performance and continued stockholder dividends that were paid over the past five years. The company has reported increased underwriting losses in recent years due to higher claim frequency associated with earlier accident years, elevated commission expenses and reduced premium volume.
Northbridge Financial Corp.’s subsidiaries and CRC (Bermuda) Reinsurance Ltd.
A.M. Best Co. affirmed the FSR of A (excellent) and ICR of “a” of Markel Insurance Co. of Canada, Federated Insurance Co. of Canada, Commonwealth Insurance Co., Commonwealth Insurance Company of America, Lombard General Insurance Company of Canada, and Zenith Insurance Co., which are all wholly owned subsidiaries of Northbridge Financial Corp. The rating agency also affirmed the FSR of A (excellent) and ICR of “a” CRC (Bermuda) Reinsurance Ltd., and the FSR of A- (excellent) and ICR of “a-” of Lombard Insurance Co. The outlook for all ratings is stable.
Concurrently, A.M. Best has withdrawn the ICR of “bbb” of Northbridge, due to the reprivatization of the company’s common shares by Fairfax. The rating has been assigned an “nr.”
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