A.M. Best Downgrades Ratings of Peachtree Casualty Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has downgraded the financial strength rating to B (Fair) from B++ (Good) and issuer credit rating to “bb” from “bbb” ofPeachtree Casualty Insurance Company (Peachtree) (Longwood, FL). The outlook for both ratings has been revised to stable from negative.

The rating downgrades reflect Peachtree’s unprofitable operating performance in recent years, as a result of the adverse trends in personal injury protection and bodily injury loss experience in the Florida personal automobile market, which led to significant overall underwriting losses. As a result, a downward trend in Peachtree’s risk-adjusted capitalization has occurred in recent years, in conjunction with elevated underwriting leverage ratios. Despite the downward trend, projections for 2012 indicate changes to underwriting criteria and reinsurance structure, which is anticipated to improve Peachtree’s risk-adjusted capitalization levels appropriate to the rating level, as indicated by the stable outlook.

Although Peachtree continues to refine its underwriting segmentation and implement rate increases in response to adverse market trends and conditions, uncertainty exists regarding the company’s ability to improve underwriting performance, particularly given the continuing difficult operating environment of the Florida automobile market.

In addition, Peachtree was recently acquired by PGIA Holdings LLC, a newly formed entity whose management is experienced in the personal automobile markets. The capital structure of PGIA includes a substantial amount of preferred stock, which A.M. Best views as a debt-like instrument, as well as significant levels of intangibles such as goodwill. As a result, sharply elevated debt-to-capital ratios exist per A.M. Best’s calculations, which also have contributed to the rating actions.

Regarding future rating movement, positive rating actions could occur if the holding company improves its debt-to-capital measures and Peachtree improves its underwriting performance. Conversely, if underwriting performance continues to be unprofitable in the near to mid term, pressuring Peachtree’s risk-adjusted capital position, downward rating pressure could occur.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; and “A.M. Best’s Ratings and the Treatment of Debt.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Company
Raymond Thomson, ARM, 908-439-2200, ext. 5621
Senior Financial Analyst
raymond.thomson@ambest.com
or
Jeffrey Mango, CPA, 908-439-2200, ext. 5204
Assistant Vice President
jeffrey.mango@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Source: A.M. Best Company