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A.M. Best Co. has downgraded the financial strength rating to D (Poor) from B (Fair) and issuer credit ratings to “c” from “bb” of Ability Reinsurance (Bermuda) Ltd. (Hamilton, Bermuda) and Ability Insurance Company (AIC) (Omaha, NE), collectively referred to as Ability Re. Subsequently, A.M. Best has withdrawn the ratings in response to company management’s request to be removed from A.M. Best’s interactive rating process.
The downgrade reflects A.M. Best’s perspective on the continued poor financial flexibility of AIC after its significant statutory losses incurred year to date through Sept. 30, 2012. Given the ongoing uncertainty regarding pending litigation and the material decline in the absolute capitalization of AIC, A.M. Best considers its financial flexibility to be very limited, which is reflected in recent rating actions. The weakness in its operating results continues to reflect reserve strengthening on AIC’s long-term care (LTC) insurance block, despite rate increases over the past few years, and ongoing litigation costs. A.M. Best notes that the company’s ability to explore strategic solutions may be less viable, particularly in the event of potential reserve increases, which many LTC insurers and reinsurers are facing given low interest rates, lower than priced for lapse rates and higher claims costs.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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