Additionally, A.M. Best has affirmed the ICR of “bb” of PMACIC’s parent, PMA Capital Corporation (PMA Capital) (Blue Bell, PA) [NASDAQ: PMACA]. A.M. Best also has affirmed the FSR of A- (Excellent) and ICRs of “a-”of PMA Insurance Group (Blue Bell, PA) and its members. The outlook for these ratings is stable. Concurrently, A.M. Best has affirmed debt and indicative ratings of PMA Capital and PMA Capital Trust I and II. (See link below for a detailed list of the companies and ratings.)
The downgrading of PMACIC’s ratings reflects the significant reduction in its stand-alone capitalization due to the combined impact of the third quarter reserve charge related to a limited number of ceding companies on PMACIC’s claims made general liability business, primarily related to professional liability claims from accident years 2001-2003 and the planned commutation of an adverse development cover in fourth quarter 2007, which will further increase PMACIC’s reserve liability. These events follow the withdrawal of extraordinary dividends by PMA Capital, which had previously reduced excess surplus within its run-off operations.
Partially offsetting these negative rating factors is access to funds associated with the planned commutation, which will provide a limited amount of liquidity to fund the run-off operations, as well as management’s long stated plan to maintain an orderly run off of the remaining liabilities. While capitalization is marginal, A.M. Best expects ongoing financial support from PMA Capital to ensure an orderly run off. The negative outlook reflects the legal separation between the companies of the PMA Insurance Group and PMACIC, concerns with the execution risk associated with managing the run-off plan, as well as the heightened concern in managing the remaining reserves given PMACIC’s weakened capital position.
If execution of the run off at PMACIC ultimately requires additional capital, and if PMA Capital fails to provide ongoing support to PMACIC, it would call into question management’s commitment to all policyholders and would likely result in a downgrading of PMA Insurance Group’s ratings.