Standard & Poor’s Ratings Services announced that it has affirmed its ‘BBB’ counterparty credit and financial strength ratings on Atlantic Specialty Insurance Co. (Atlantic Specialty) and removed these ratings from CreditWatch. It subsequently withdrew the ratings at the company’s request.
“This action follows completion of the sale of Atlantic Specialty to OneBeacon Insurance Co. as part of the previously announced agreement to sell most of Atlantic Mutual Cos.’ commercial lines business to OneBeacon,” said S&P. “This transaction closed on April 1, 2004. Before its sale, all policyholder liabilities of Atlantic Specialty were reinsured into other Atlantic Mutual companies. OneBeacon is not rated by Standard & Poor’s.”
S&P had placed the ratings of the Atlantic Mutual operating companies on CreditWatch following the Dec. 5th announcement of the sale to OneBeacon.
The rating agency said: “The sale of Atlantic Mutual’s commercial lines business to OneBeacon, together with the sale of Atlantic Mutual’s marine division to Travelers Property Casualty Corp., means the company has exited lines that in 2002 constituted 85 percent of its direct premiums, leaving Atlantic Mutual a much smaller, less diversified writer of personal lines business. Both transactions involved the sale of unearned premiums and renewal rights, leaving Atlantic Mutual with the challenge of managing the runoff of claims reserves associated with the older, less-profitable business for which significant reserve strengthening has already occurred.”
S&P also noted that it “is currently reviewing the financial effect of this transaction and other restructuring actions taken by Atlantic Mutual in 2003 and in the first quarter of 2004, including the adequacy of reserves for lines now in runoff and the continued effect of certain financial reinsurance transactions used to bolster surplus in recent years.
“Reported surplus declined to $321 million at year-end 2003 from $456 million one-year prior. The negative effect on capital adequacy is partially mitigated by the sharp decline in new business requiring capital support.”
S&P is also “evaluating the company’s new business strategy and projected earnings and cash flow from its sharply reduced business platform. As part of our analysis, Standard & Poor’s is reviewing the company’s plans for servicing its $115 million of outstanding surplus notes. Standard & Poor’s expects to complete its review by late April.”
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