The rating action for Federated National reflects the combination of significant net capital losses as a result of hurricane activity, considerable net premium growth in recent years along with elevated catastrophe exposure. As a result, the company's risk-adjusted capitalization has deteriorated materially and, in A.M Best's opinion, does not support a rating of "C-" on a stand-alone statutory basis, given the company's current operating performance and business profile.
The downgrade of American Vehicle reflects continued adverse loss reserve development and growth in net premiums written, as well as its overall role in the group and exposure to adverse results in its sister company, Federated National. A.M. Best believes that the current statutory capitalization of American Vehicle supports a stand-alone Best's Rating of "B-", given the company's current operating performance and business profile and given that capital proposed to be raised from asset sales could potentially support a "B". However, the company remains exposed to the overall weak financial condition of the group. Historically, this exposure was evident through the use of an inter-company quota share reinsurance agreement as well as catastrophe reinsurance protection. Although both are no longer in effect, A.M. Best believes there is a clear linkage between the two organizations.
While the parent company, 21st Century Holding Co., has provided on-going financial support to the statutory entities, as a result of the series of hurricanes, continued adverse loss development, growth in net premium and changing business concentrations, capitalization of the group as a whole has significantly deteriorated and no longer supports a rating in the "B" range, in A.M. Best's opinion. A.M. Best's view of the consolidated holding company impacts the ratings of the two operating units and results in the final published Financial Strength Ratings of the two operating companies.
The ratings had been under review pending the outcome of management's recapitalization plan and A.M. Best's meeting with management. As part of this plan, the parent company completed a private placement of Senior Convertible Notes, raising $12.5 million due in three years, with a company option to make principal and interest payments in common stock or cash. As recently as two weeks ago, management met with A.M. Best regarding its capital raising initiatives and strategic plans. At that time, it was indicated that recapitalization efforts through the sale of assets as well as reinsurance agreements were in progress, with completion anticipated by January 2005. While the parent company recently publicly indicated its progress regarding these initiatives, there has been no indication to A.M. Best as to how much of the proceeds, if any, will be contributed to the statutory entities as well as the intermediate strategic plans of the organization.
In A.M. Best's evaluation of financial strength, a BCAR score, or even our overall view of capi