Rating Roundup: Sedgwick, Penn Treaty (Subsidiaries), Aviva

Standard & Poor’s Ratings Services has revised its outlook on Sedgwick CMS Holdings Inc. to stable from positive, and has affirmed its ‘B+’ counterparty credit rating on Sedgwick. “The revised outlook reflects Sedgwick’s consistently weak interest coverage ratio and burdensome financial leverage,” explained credit analyst Andrew Dral. “The company’s debt burden has weighed more heavily on the financial ratios than originally anticipated when the additional $150 million term loan was granted in September 2006,” said S&P. “Sedgwick’s competitive position and operating performance continue to improve.” S&P also indicated that it “expects Sedgwick to solidify its position as the leading third-party administrator of workers’ compensation and liability claims management services. Management will accomplish this by cross-selling to existing customers, attracting new customers, and acquiring companies that will either broaden Sedgwick’s product line or increase its market share. Customer retention should remain strong. The economic environment is difficult, so outsourcing could boost an outsourcer’s operating performance, but Sedgwick’s historical revenue growth might still be difficult to obtain.”

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘D’ (Poor) from ‘B-‘ (Fair) and issuer credit ratings (ICR) to “c” from “bb-“of Penn Treaty American Corporation’s insurance subsidiaries. They include Penn Treaty Network America Insurance Company, American Network Insurance Company (both of Allentown, PA) and American Independent Network Insurance Company of New York. Best also downgraded the ICR to “c” from “ccc” of Penn Treaty. The outlook for all ratings is negative. “These rating actions are in response to Penn Treaty’s announcement that it has notified Imagine International Reinsurance Limited (Imagine) (Ireland) of its intention to recapture on January 1, 2009 all long-term care insurance policies reinsured by Imagine,” said Best. “In August 2008, Imagine stated it was not willing to provide additional collateral in the form of letters of credit (LOCs) associated with business issued prior to 2002 (“old co” business). Until 2008, Imagine had been providing increasing LOCs as part of the “old co” reinsurance agreement, which had enhanced Penn Treaty’s statutory surplus position.” Best added that “as of today, Penn Treaty does not have enough statutory capital and surplus to recapture this business. Additionally, Penn Treaty’s insurance entities recently have reported weakened statutory surplus due to large operating losses. This position has been further eroded by the recent failure of Washington Mutual (WaMu), which represented a sizeable portion of Penn Treaty’s June 30, 2008 statutory surplus position.”

A.M. Best Co. has withdrawn the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of Aviva Life Insurance Company and Indianapolis Life Insurance Company. Best also assigned a category NR-5 (Not Formally Followed) to the FSR and an “nr” to the ICRs. “Aviva Life and Indianapolis Life were life/health subsidiaries of Aviva USA Corporation,” said Best, the U.S. operations of the UK’s AVIVA plc.