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10 Sep 2004
MOODY'S CONFIRMS DEBT RATINGS OF PMA CAPITAL CORP. (SENIOR AT B3); INSURANCE FINANCIAL STRENGTH RATINGS OF SUBSIDIARIES AFFIRMED; OUTLOOK IS DEVELOPING
New York, September 10, 2004 -- Moody's Investors Service announced today that it has confirmed the long-term
debt ratings of PMA Capital Corporation (PMACC) (senior unsecured debt
at B3). The outlook for the ratings on PMACC's debt securities
is developing. In the same rating action, Moody's affirmed
the insurance financial strength rating of PMA Capital Insurance Company
(PMA Re) at B1 and the insurance financial strength ratings of The PMA
Insurance Group companies (PMAIG) at Ba1, with the outlooks changed
to developing from negative.
Moody's stated that the rating action concludes a rating review
with direction uncertain that was initiated on the long-term debt
ratings of PMACC in February 2004 following a multi-notch downgrade
of PMACC and its operating subsidiaries in connection with the reduced
capitalization of PMA Re , which is currently in run-off,
and liquidity constraints at the holding company, which had been
precluded from receiving dividends from PMA Re through a letter agreement
with the Pennsylvania Department of Insurance (PDI). On June 25,
2004, the PDI granted PMACC's request to modify its holding
company structure so that its wholly-owned indirect PMAIG subsidiaries
would become its direct subsidiaries. In its order, the PDI
prohibits the payment of dividends by PMA Re in 2004 and 2005.
In 2006, PMA Re may make dividends to the holding company provided
that immediately after such dividend, PMA Re's NAIC risk-based
capital ratio exceeds 225%. In 2007 and beyond, PMA
Re may make dividends to the holding company provided that they are not
considered extraordinary dividends (e.g. above statutory
Importantly, the change in organizational structure restores adequate
unrestricted dividend capacity from the PMAIG companies to the holding
company, which may dividend up to $23.2 million to
PMACC during 2004 without prior regulatory approval. Moody's
estimates that PMACC now has unrestricted dividend capacity coverage of
interest and fixed charges (interest payments and holding company expenses)
of approximately 2.1 and 1.2 times, respectively.
From a capital perspective, Moody's notes that the PMAIG companies
have reported relatively strong NAIC risk-based capital measures.
However, Moody's remains concerned about the erosion in written
premiums at the ongoing primary insurance operations at PMAIG.
Renewal rates at PMAIG, which primarily writes workers' compensation
and integrated disability coverages, have been approximately 60%
(compared to historic norms of about 80%), with 2Q2004 NPW
falling approximately 31% compared to 2Q2003, as some credit-sensitive
business has migrated toward more highly rated carriers. Since
approximately 85% of PMAIG's business is produced by independent
agents and brokers, which typically have minimum financial security
thresholds to place business, Moody's views PMAIG's
ability to retain and produce adequately-priced business to be
a key rating consideration going forward.
With respect to PMA Re, Moody's stated that the company's
surplus position has improved since it was placed into run-off,
and currently has $236 million in surplus. PMACC has purchased
an adverse development reinsurance cover for its run-off operations,
which includes business written by PMA Re and Caliber One, PMACC's
excess and surplus lines business that was placed into run-off
in 2002. The reinsurance cover provides for PMA Re to transfer
$100 million of assets in exchange for coverage for adverse loss
reserve development of up to $120 million. If needed,
another $85 million of coverage is available for $35 million
in additional premiums. Importantly, this agreement protects
the level of statutory surplus at PMA Re, which could potentially
be used in 2006 and beyond to service principal and interest payments
on holding company debt.
Moody's notes that holders of PMACC's $86 million in
convertible senior notes have the option to put the notes back to the
company in September 2006. The company may pay for the notes in
cash, stock or a combination thereof. To the extent the run-off
of PMA Re's liabilities is manageable and does not exhaust the adverse
development cover described previously, there should be sufficient
policyholder surplus (and, importantly, unassigned surplus)
at PMA Re to upstream dividends to the holding company to pay down the
notes provided that regulatory approval for dividends in excess of statutory
limitations can be obtained.
The rating agency stated that the developing outlook on PMACC and its
subsidiaries reflects the potential for the ratings to move either up
or down over the next 12 to 18 months. Specifically, the
debt rating could be raised provided there was greater certainty regarding
the sources of cash available to repurchase its convertible senior notes
in 2006. Likewise, the continued orderly run-off of
PMA Re's liabilities and a stabilization of the PMAIG operations
could exert positive rating pressure on their respective insurance financial
strength ratings. Conversely, significant adverse loss reserve
development at PMA Re that exhausts the adverse development cover could
negatively impact its financial strength rating. Moody's
ratings on PMAIG carry an expectation that it will continue to remain
profitable. To the extent PMAIG experiences a sustained period
of poor operating performance, its insurance financial strength
ratings could face negative pressure.
The following ratings have been confirmed and assigned a developing outlook:
PMA Capital Corporation - senior unsecured debt at B3, prospective
senior unsecured debt at (P)B3, prospective subordinated debt at
(P)Caa2 and prospective preferred stock at (P)Caa3;
PMA Capital Trust I - prospective preferred securities at (P)Caa2;
PMA Capital Trust II - prospective preferred securities at (P)Caa2;
The following ratings have been affirmed, with the outlook changed
to developing from negative:
PMA Capital Insurance Company - insurance financial strength at
Manufacturers Alliance Insurance Company - insurance financial
strength at Ba1;
Pennsylvania Manufacturers' Association Insurance Company - insurance
financial strength at Ba1; and
Pennsylvania Manufacturers Indemnity Company - insurance financial
strength at Ba1.
PMACC, headquartered in Philadelphia, Pennsylvania,
is an insurance holding company whose operating subsidiaries provide specialty
risk management products and services to its customers in the United States.
As of June 30, 2004, PMACC had shareholders' equity
of $444 million.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to punctually repay senior policyholder claims
and obligations. For more information, visit our website
Financial Institutions Group
Moody's Investors Service
Financial Institutions Group
Moody's Investors Service
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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