A.M. Best Downgrades and Places Under Review Ratings of Catholic Knights

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. BestCo. has downgraded the financial strength rating to B (Fair) from B+ (Good) and issuer credit rating to “bb+” from “bbb-” of Catholic Knights (the Society) (Milwaukee, WI).The ratings have been placed under review with negative implications.

These rating actions reflect the Society’s decline in its unassigned funds since year-end 2008 due to investment losses, both realized and unrealized. As a result, the Society’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), continues to be weak. A.M. Best notes that Catholic Knights experienced a large increase in below-investment grade securities in 2009, due primarily to credit migration in its residential mortgage-backed securities portfolio, which may further weaken the Society’s balance sheet position and its unassigned surplus funds going forward. However, these securities may be subject to re-evaluation before the end of 2009, and the Society has the intention and ability to hold these securities over the long term. In order to lower volatility and bolster its unassigned funds, the Society has reduced its exposure to equities and is pursuing a capital improvement plan that includes the addition of capital from external sources.

The rating also recognizes that Catholic Knights has reported consistently positive statutory operating results over the past five years while enjoying a long-standing fraternal presence in the Roman Catholic community.

Catholic Knights has signed a letter of intent to merge with Catholic Family Life Insurance (Shorewood, WI) and intends to complete the merger in second quarter 2010. The combination would result in an increased membership base and opportunities for fraternal synergies. Furthermore, Catholic Knights has a successful record of mergers with other Catholic fraternal organizations, thus gaining membership, expanding financial capacity and presenting another avenue for membership growth. However, the merger also will add a higher level of commercial mortgage loans to Catholic Knights’ balance sheet and will initially result in merger-related charges, with anticipated savings from economies of scale coming in the following year.

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 Co.
Analysts
Robert Stewart, 908-439-2200, ext. 5232
[email protected]
or
Raj Shah, 908-439-2200, ext. 5409
[email protected]
or
Public Relations
Jim Peavy, 908-439-2200, ext. 5644
[email protected]
or
Rachelle Morrow, 908-439-2200, ext. 5378
[email protected]

Source: A.M. Best Co.