S&P, Moody’s Downgrade American Growers, Acceptance

Standard & Poor’s Ratings Services announced that it has lowered its counterparty credit and financial strength ratings on American Growers Insurance Co. (AGIC) to ‘R’ from ‘CC’, and removed the company from CreditWatch following the order of supervision issued by the Nebraska Department of Insurance.

In a related move Moody’s Investors Service announced that it has lowered the debt and financial strength ratings of Acceptance Insurance Companies, Inc. (AGIC’s parent) and its operating subsidiaries trust preferred securities to C from B3, following the announcement that the plans to sell some of its crop insurance assets were refused by regulators and the supervision order.

S&P also explained that it had taken the action following the severe losses posted by AGIC, a $131 million after tax loss for the third quarter, and the decision by the Risk Management Agency of the U.S. Department of Agriculture not to approve the non-binding asset sale agreement involving AGIC. (See IJ Website Nov.25) The bulletin further specified that ‘R’ is a rating designation for an insurer that has passed under regulatory supervision.

Moody’s cited Acceptance’s “significant financial leverage, limited financial flexibility and weak and potentially volatile earnings prospects,” to explain the downgrade. It indicated that “Although the trust preferred agreement allows deferring interest payment, the ability to meet debt obligations in the long term is unlikely. Additionally, the earnings continue to be hampered by the adverse development and reserve strengthening associated with the property and casualty operations – currently in runoff.”

It went on to state that “The financial strength ratings of the company’s two operating subsidiaries – American Growers Insurance Company and Acceptance Insurance Company were lowered to B2 and Caa1 respectively. These actions reflect the thin capitalization and volatile earnings profile at these entities.” AGIC was given a higher rating mainly because it may benefit from participation in the Federal Crop Insurance Corporation, a US government sponsored organization.