OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Canal Insurance Company and its wholly owned, 100% reinsured subsidiary, Canal Indemnity Company, collectively referred to as Canal Group. Both companies are domiciled in Greenville, SC.
The negative outlook reflects Canal Group’s weak operating results that have tracked unfavorably to composite norms for an extended period of time. Underwriting losses were heightened by soft market conditions and unfavorable loss reserve development, leading to unprofitable operating results. Operating results also have been negatively impacted by declining levels of net investment income.
The ratings reflect Canal Group’s very strong risk-adjusted capitalization, management’s actions to improve operating results and the group’s recognized leadership position in the commercial trucking segment. Since 2009, Canal Group has made significant investments in improving operating results, which have included new talent at the senior management level and technology to improve price sophistication and its ease of doing business. Given the volatile underwriting results in recent years, Canal Group’s new management team revised its marketing focus to emphasize more profitable niches while non-renewing unprofitable ones. The group also has attained rate increases across all lines of business. Canal Group’s strong capital cushion will continue to support its current rating level as leadership attempts to return the group to operating profitability. While operating results were negative in 2013, surplus grew on strong levels of both realized and unrealized capital gains.
There remains a high degree of execution risk in management meeting its expectation of producing profitable operating results in the near term. While operating results were favorable in 2012, underwriting results unexpectedly deteriorated in 2013 leading to pre-tax operating losses. This unexpected outcome led management to adjust its turnaround strategy. The success of this strategy will continue to be reviewed by A.M. Best and will be a determinant in future rating actions. The ratings could be downgraded if Canal Group’s underwriting and operating performance do not materially improve during 2014.
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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