A.M. Best Downgrades Ratings of Canal Insurance Company and Canal Indemnity Company [Health & Beauty Close – Up]

A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and issuer credit ratings to "a-" from "a" of Canal Insurance Company and its 100 percent reinsured subsidiary, Canal Indemnity Company (both are domiciled in Greenville, SC).

Together, these companies are known as the Canal Group (Canal). The outlook for all ratings has been revised to stable from negative.

The rating downgrades reflect Canal's significant adverse loss reserve development prior to 2011, which has led to heightened underwriting losses and weak operating returns. From 2007 through 2010, Canal experienced considerable adverse development on its commercial automobile loss reserves, predominantly on accident years 2005 through 2008. More current accident year results also have suffered under increased competition and weak macroeconomic conditions. Additionally, both of these factors have led to Canal experiencing declines. Operating return measures remain below Canal's commercial automobile peer composite.

These negative rating factors are partially offset by Canal's risk-adjusted capitalization, historical operating performance and recognized position in its core commercial trucking segment. Beginning in 2009, the group made significant investments in technology to improve its ease of doing business as well as new talent at the senior management level and at lower levels to enhance product management and development capabilities. Furthermore, Canal's new management team has strengthened its underwriting, claims handling and loss reserving methodology. As such, Canal believes its reserves are now conservative and reported slightly favorable development in 2011. The outlook reflects management's strategic plans to improve profitability going forward, and A.M. Best's belief that risk-adjusted capitalization through this operational turnaround period is expected to remain very strong.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides an explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies" and "Understanding BCAR for Property/Casualty Insurers."

Best's Credit Rating Methodology:

http://www.ambest.com/ratings/methodology

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