Acceptance, American Growers Lowered

A.M. Best Co. downgraded the financial strength ratings of Acceptance Insurance Companies Inc.’ s two operating subsidiaries, American Growers Insurance Company of Lincoln, Neb., to “C-” (Weak) from “B++” (Very Good), and its affiliate, Acceptance Insurance Company, to “C-” (Weak) from “B+” (Very Good).

Best’s action follows the same action announced by Standard & Poor’s and for essentially the same reasons. Acceptance’s announcement of significant third quarter operating losses resulted in what Best characterized as the “erosion in statutory surplus and the constrained financial flexibility of its publicly-traded parent company, Acceptance Insurance Companies Inc.”

The New York Stock Exchange subsequently announced the suspension of Acceptance’s shares from trading, as they no longer met the NYSE’s listing standards. The shares could still trade in over-the-counter markets. They last closed at 55 cents.

As previously noted, the troubles at Acceptance stem from greater than expected losses from crop insurance related to the prolonged drought in the Midwest. The parent company’s write-down of deferred tax assets, strain on cash flow and erosion in AIF’s GAAP equity have exacerbated the situation.

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A.M. Best noted that American Growers’ capital position has been so severely impacted that the company’s level of surplus and overall assessment of risk-adjusted capitalization is considered tenuous. Best said it also considered the potential sale of American Growers crop business to Rain and Hail LLC. and Ace American Insurance Company to be uncertain. As a result of that uncertainty, the rating outlook is negative.

The rating action for Acceptance Insurance Company reflects the company’s role within the group, its vulnerable risk-adjusted capitalization and the ongoing adverse loss reserve development reported during the second and third quarters of 2002.