A.M. Best Downgrades Ratings of Western Insurance Company and Western Bonding Company; Revises Outlook to Negative

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has downgraded the financial strength ratings to B++ (Good) from A- (Excellent) and issuer credit ratings to “bbb” from “a-” of Western Insurance Company (WIC) and Western Bonding Company (WBC) (both of Reno, NV). The outlook for all ratings has been revised to negative from stable.

The rating actions follow the analysis of WIC’s underwriting exposure to a sister company, Western Thrift and Loan, Inc. (WTL), which was placed under a cease and desist order by the State of Nevada Department of Business and Industry Financial Institutions Division in October 2009. These rating actions also reflect the impact from the economic downturn in the construction industry and the significant underwriting losses and cash outflows associated with the group’s California subdivision bonds. An additional factor is management’s recent diversification of WIC’s bond offerings to include bail bonds in California, a program undertaken with due diligence but requiring monitoring for execution risk. While management has responded to all of the points in the cease and desist order, there is still significant uncertainties regarding the ultimate impact on WTL and WIC, which insures WTL’s certificates of deposit. Per management, this exposure is being aggressively managed downward during 2010.

Somewhat mitigating factors include the contractual requirement for WTL to reimburse any loss payments by WIC, with certain real estate assets and auto loans currently held by WTL, as well as access to additional funding primarily through existing bank lines of credit and funds available from a non-insurance affiliate. WIC’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, would still be adequate should the bond be triggered.

In addition, should WTL fail, its principal shareholders and those of WIC, may encounter some liquidity issues, which could put pressure on WIC and WBC.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies,. please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

A.M. Best Company
Analysts
Scott Dodd, 908-439-2200, ext. 5582
[email protected]
or
Gerard Altonji, 908-0439-2200, ext. 5626
[email protected]
or
Public Relations
Rachelle Morrow, 908-439-2200, ext. 5378
[email protected]
or
Jim Peavy, 908-439-2200, ext. 5644
[email protected]

Source: A.M. Best Company