This rating action follows an earlier announcement made by Bancinsurance Corporation ("Bancinsurance") (NASDAQ: BCISE) that Ernst and Young LLP ("E&Y") had withdrawn its audit reports for Bancinsurance and its two subsidiaries, including Ohio Indemnity Company. This rating action also contemplates the uncertainty with respect to potential losses as it relates to the bail bond business reinsured by Ohio Indemnity during the period 2001 though 2004.
E&Y's withdrawal covers three years ending 2001 - 2003 and stems from material weaknesses of internal controls related to the bail bond business These internal control weaknesses allege that Ohio Indemnity was aware of significant claim development in its bail bond program and did not provide E&Y with this information on a timely basis prior to filing its 2003 Form 10-K. Therefore, E&Y contends that they can no longer rely on the representations of management at this time. As a consequence, Bancinsurance Corporation's securities will also be delisted from the Nasdaq Stock Market on February 22, 2005.
Disclosures related to claim development from this bail bond program were made available in Bancinsurance's Form 10-Q for the periods ending June 30, 2004 and September 30, 2004. Management states that certain loss reserves from this program had not been established since those losses were in dispute and in arbitration. The Company's audit committee is reviewing the matter and is expected to recommend whatever action may be necessary to resolve these issues. Management's objective is to have these withdrawn audit reports re-issued or replaced as soon as possible. A.M. Best plans to monitor this situation closely.
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.