A.M. Best Co. has downgraded the financial strength ratings (FSR) to “B” (Fair) from “B++” (Very Good) and the issuer credit ratings (ICR) to “bb” from “bbb” for the insurance/reinsurance subsidiaries of Bermuda-based Quanta Capital Holdings Ltd.
“These rating actions apply to Quanta Reinsurance Ltd. (Quanta Re) (Hamilton, Bermuda), its subsidiaries and Quanta Europe Ltd. (Dublin, Ireland),” said Best. The rating agency also downgraded Quanta’s ICR to “b” from “bb” and the securities rating to “ccc” from “b+” for its $75 million 10.25 percent Series A non-cumulative perpetual preferred shares. All the ratings have been removed from under review with negative implications and assigned a negative outlook.
“Subsequently,” Best said, “all ratings of Quanta will be withdrawn and the FSRs will be assigned a rating of NR-4 (Company Request) in response to management’s request that Quanta be removed from A.M. Best’s interactive rating process.”
The action was not unexpected, following Quanta’s decision to cease underwriting or seeking new business and to place most of its remaining specialty insurance and reinsurance lines into orderly run-off (See IJ Website May 26). Best reaffirmed the “under review with negative implications” on the ratings shortly thereafter (See IJ Website May 31).
Reacting to the news, Quanta’s Chairman, James J. Ritchie, commented: “As recently reported and in conjunction with our strategic evaluation, we have ceased underwriting or seeking new business, and have placed most of our remaining specialty insurance and reinsurance lines into orderly run-off, excluding our Lloyd’s and ESC operations.
“The A.M. Best ratings action was an expected consequence of this decision. Our Lloyd’s Syndicate 4000 and ESC’s environmental consulting business will continue their ongoing operations. Meanwhile, as we are beginning to implement our run-off plan, we believe that the financial strength ratings for our specialty lines provide little value, and we have therefore requested their withdrawal.”
As part of the run-off plan Quanta has agreed to sell the renewal rights to its U.S. environmental liability business to Liberty International Underwriters, a division of Liberty Mutual Group (See IJ Website May 26).
Best also noted that it had previously downgraded Quanta’s ratings on March 2, 2006 after the Company reported a significant fourth-quarter 2005 net loss (See IJ Website March 3). As a result the ratings fell below “A” grade.
Quanta’s bulletin said Best’s most recent action had been anticipated, and that it “has triggered a default under Quanta’s credit facility.” But Quanta then explained, “there are currently no outstanding borrowings under the credit facility. The Company presently has approximately $215 million of letters of credit issued under the credit facility, which are fully secured. These letters of credit are principally used to secure the Company’s obligations to pay claims. While any default continues to exist, the Company will be, among other things, prohibited from paying any dividends to its shareholders, including the holders of its series A preferred shares. The Company will work diligently with its syndicate of lenders and its clients with respect to any default and its consequences.
“Additionally, the Company will work with applicable regulatory authorities to facilitate dividends from its insurance operating subsidiaries to the holding company. We anticipate that, in many cases, the paying of dividends to the holding company will require regulatory approval. Working with these regulators takes time and requires the Company to meet many conditions.”
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