AM Best Downgrades Credit Ratings of Catholic Order of Foresters

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” (Good) from “a-” (Excellent) of Catholic Order of Foresters (COF) (Naperville, IL). The outlook of these Credit Ratings (ratings) has been revised to stable from negative.

The ratings reflect COF’s balance sheet strength, which AM Best assesses as adequate as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

The rating downgrades are a result of the deterioration in COF’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), to a weak level for 2021 from a strong level in 2020; however, it is projected to improve to adequate for 2022. In 2021, capital declined primarily due to two subsidiaries coming through as non-admitted assets, coupled with a net loss for the year. Of the two non-admitted assets at year-end 2021, one subsidiary has been admitted recently, with the other anticipated to be admitted by year-end 2022, partially resolving recent capital volatility. Prior-year capital declines have stemmed largely from operating losses due to accounting changes related to income recognition in its small business loan interest-only strip holdings. The company also has been making investments in real estate entities, which have not yielded dividend earnings yet to the parent. The company has the ability to access additional capital; COF maintains a line of credit with a bank and has the capability to borrow from the Federal Home Loan Bank. The stable outlooks reflect the expectation that the company has reversed the negative trend in operating performance, and going forward, operating results will start to contribute favorably to organic capital growth.

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