AM Best Downgrades Credit Ratings of Members of Columbian Financial Group; Maintains Under Review With Negative Implications Status
April 18 2024 - 9:50AM
Business Wire
AM Best has downgraded the Financial Strength Rating to
C+ (Marginal) from C++ (Marginal) and the Long-Term Issuer Credit
Ratings to “b-” (Marginal) from “b” (Marginal) of Columbian Mutual
Life Insurance Company (Columbian) (Binghamton, NY) and Columbian
Life Insurance Company (CLIC) (Chicago, IL), collectively referred
to as Columbian Financial Group (CFG). Concurrently, AM Best has
maintained the under review with negative implications status for
these Credit Ratings (ratings).
The ratings reflect CFG’s balance sheet strength, which AM Best
continues to assess as very weak, as well as its marginal operating
performance, neutral business profile and appropriate enterprise
risk management.
While operating losses narrowed slightly in 2023 compared with
2022, partly due to lower mortality claims experience, the losses
continued to pressure CFG’s risk-adjusted capitalization, as
measured by Best’s Capital Adequacy Ratio (BCAR). A narrower net
loss was largely driven by a permitted practice by New York State
Department of Financial Services (NYS DFS) that allowed the mutual
parent company, Columbian, to accelerate interest maintenance
reserve amortization of $6 million. This helped offset a $3 million
impairment of an investment in a fixed income security issued by a
regional bank in the first quarter of 2023.
The ratings were put under review shortly after the CFG
announcement on June 29, 2021, that its board of directors had
approved a strategic transaction with Constellation Insurance
Holdings, Inc. (Constellation), which included the sponsored
demutualization of Columbian to a stock company. It is expected
that Constellation would provide CFG needed capital support from
its substantially larger organization while CFG maintains its brand
and focus on the senior life insurance market and the associated
consumer needs for preneed and final expense life insurance
products. Despite an expected positive impact on capital from the
planned transaction with Constellation, the anticipated closing
date has been pushed back several times.
Since the NYS DFS initiated an unclaimed property review in
December 2021, CFG management has indicated that the group has
booked incremental reserves for anticipated payouts to
beneficiaries of insured lives who are deceased, according to the
Social Security Death Master File; however, the final outcome
remains uncertain. The CFG Board remains focused on completing this
review and also approved extending the merger agreement with
Constellation, this time through June 30, 2024; which would imply
the transaction could close by the end of the second or third
quarters of 2024.
The under review status reflects AM Best’s expectation that the
company’s BCAR assessment and hence the security of the
policyowners’ existing coverages should improve upon the closing of
the transaction. The negative implications status captures AM
Best’s concerns around the potential for continued losses and the
level of capital going forward, especially if the unclaimed
property review and transaction do not reach a conclusion. AM Best
will continue to monitor the transaction and financial strength of
the company.
This press release relates to Credit Ratings that have been
published on AM Best’s website. For all rating information relating
to the release and pertinent disclosures, including details of the
office responsible for issuing each of the individual ratings
referenced in this release, please see AM Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please
view Guide to Best's Credit Ratings. For information
on the proper use of Best’s Credit Ratings, Best’s
Performance Assessments, Best’s Preliminary Credit Assessments and
AM Best press releases, please view Guide to Proper Use of
Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and
data analytics provider specializing in the insurance industry.
Headquartered in the United States, the company does business in
over 100 countries with regional offices in London, Amsterdam,
Dubai, Hong Kong, Singapore and Mexico City. For more information,
visit www.ambest.com.
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Stratos Laskarides Senior Financial Analyst +1 908 882
1995 stratos.laskarides@ambest.com Edward Kohlberg Director
+1 908 882 1979 edward.kohlberg@ambest.com Christopher
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Specialist +1 908 882 2318 al.slavin@ambest.com