A.M. Best Places Ratings of Balboa Insurance Group and Its Members Under Review With Negative Implications

A.M. Best Co. has placed under review with negative implications the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of Balboa Insurance Group (Balboa) and its property/casualty members, Balboa Insurance Company (BIC), Meritplan Insurance Company (both domiciled in Irvine, CA) and Newport Insurance Company (Phoenix, AZ). In addition, A.M. Best has placed under review with negative implications the FSR of A- (Excellent) and ICRs of “a-” of Balboa Life Insurance Company and Balboa Life Insurance Company of New York (collectively Balboa Life). All companies are owned by the BA Insurance Group, Inc., which is ultimately owned by Bank of America Corporation (BAC) [NYSE: BAC].

The under review status of the ratings is in response to the February 3, 2011 announcement that a definitive agreement was signed that encompassed the sale of the assets and liabilities of the entities within Balboa by BAC to QBE Insurance Group Limited (QBE), with the legal entities remaining with BAC. Although it is anticipated that favorable risk-adjusted capitalization will be maintained by Balboa during the transition of business to QBE, the negative implications contemplate the prospective change in Balboa’s business profile as a risk-bearing entity following the transaction. The ratings will remain under review pending A.M. Best’s further discussions with management and any additional assessment of Balboa as the business migrates to QBE following the close of the transaction. The transaction is expected to be completed in mid-2011.

While Balboa Life was not part of the definitive agreement announcement, A.M. Best is uncertain as to the strategic value of Balboa Life for BAC going forward. The under review status reflects A.M. Best’s belief that the business expansion expected as part of BAC is now unlikely to materialize for Balboa Life.

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 “Rating Members of Insurance Groups.” Methodologies can be found at http://www.ambest.com/ratings/methodology.