A.M. Best Co. has downgraded the financial strength rating to ‘B+’ (Good) from ‘B++’ (Good) and issuer credit rating to “bbb-” from “bbb” of San Bruno-based Business Alliance Insurance Company (BAIC). Best also placed the ratings under review with negative implications.
The ratings of BAIC’s parent, Public Service Mutual Insurance Company (PSM), the lead member of the Magna Carta Companies, as well as the other members of the group, are unchanged.
Best explained that it took the rating actions following the “unexpected outcome of a hearing held on July 26, 2010, in which the court ordered PSM to return shares of BAIC to its former owners within 60 days, despite the stated opposition to the ownership change by its former owners.”
The hearing was expected to “direct the parties to develop a schedule that would allow PSM to pay the former owners of BAIC a yet-to-be agreed upon value and for BAIC to remain with Magna Carta,” Best continued.
This latest ruling presumably ends the long litigation that began in 2005 over a dispute concerning the terms of a proposed sale of the company from BAIC’s former parent, National Farm Financial Corporation, which is owned by the Chao Family Trust, to PSM.
“With this court ruling, BAIC will cease to benefit from the ownership of PSM, including intercompany reinsurance, infrastructure and management support,” Best explained.
The rating agency also indicated that BAIC’s ratings would remain under review until transfer of ownership is finalized. At that time, Best said it would “likely remove the company from under review and either further downgrade or affirm the ratings following discussions with BAIC’s management regarding plans for the company.”
Source: A.M. Best
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