Pennsylvania Court Approves Liquidation of First Sealord Surety Insurance

A Pennsylvania court has accepted the Pennsylvania Insurance Department's request to liquidate First Sealord Surety Insurance. The court's approval comes after the department announced that First Sealord suffered a steep decline in its surplus.

First Sealord Surety opened in 1991 as a monoline insurance company underwriting surety bonds. The company insured construction general contractors and subcontractors against loss. Until it stopped writing bonds, it offered coverage in 39 states, the department said in a statement.

Under the terms of the liquidation, the department will use all of the company's assets to pay policyholder claims. Creditors are also paid in order of priority and follow a proof of claims process. The department will then distribute any surplus funds to the shareholders. The company's policies will terminate within 30 days of the liquidation order.

"The court's approval of our petition puts numerous policyholder safeguards in place and establishes an orderly payment process," Insurance Commissioner Michael Consedine said in a statement.

The liquidation order comes after global specialty insurer Torus walked away from a proposed acquisition of First Sealord Surety Inc. earlier this month (Best's News Service, Feb. 6, 2012).

On Jan. 20, A.M. Best Co. downgraded Villanova, Pa.-based First Sealord Surety's financial strength rating to C (Weak) from A- (Excellent).

The rating actions reflected the increased uncertainty that the Torus acquisition would close, as well as A.M. Best’s expectation of "significant deterioration" in First Sealord's financial condition during the fourth quarter of 2011, A.M. Best said (Best's News Service, Jan. 20, 2012).

At September 2011, First Seaboard posted a net loss of $6.7 million, compared with net income of $718,000, for the same period a year earlier, according to BestLink. The company's combined ratio rose to 174.2 in September 2011 from 91.3 for the same period a year earlier. The company's five-year average combined ratio was 93.3, significantly higher than the five-year average combined ratio for the industry, 70.7.

(By Jeff Jeffrey, Washington Correspondent: [email protected])