OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has maintained the under review with developing implications status for the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Ratings of “bb+” (Fair) of Columbian Mutual Life Insurance Company (Columbian) (Binghamton, NY) and Columbian Life Insurance Company (Chicago, IL), collectively referred to as Columbian Financial Group (CFG).
The Credit Ratings (ratings) reflect CFG’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.
The Credit Ratings (ratings) were put under review with developing implications shortly after CFG’s announcement on June 29, 2021, that its board of directors had approved a strategic transaction with Constellation Insurance Holdings, Inc. (Constellation) that includes the sponsored demutualization of Columbian to a stock company with the issuance of all newly issued stock to Constellation. Constellation is an insurance holding company backed by two large Canadian institutional investors primarily engaged in the management of pension plans, Caisse de Dépôt et Placement du Québec and Ontario Teachers’ Pension Plan Board. The transaction provides for Constellation to invest up to $100 million to fund cash payments to eligible policyholders and significantly strengthen the capitalization of Columbian. The acquisition of Columbian by Constellation will provide Columbian needed capital support from a substantially larger organization while maintaining its brand, management team and headquarters.
Despite an expected positive impact on capital from the planned transaction with Constellation, the ratings will remain under review with developing implications until all approvals are finalized, the transaction closes and AM Best evaluates the overall impact. The anticipated closing date is during the second quarter of 2023. Until that time, AM Best will monitor the potential for continued pressure on Columbian's risk-adjusted capitalization primarily from the effects of the COVID-19 pandemic on the senior market. In the interim, negative rating actions on CFG are possible if its risk-adjusted capitalization continues to decline prior to close of the transaction. Prior-year capital declines have stemmed largely from the impact of the COVID-19 pandemic on life insurance claims, traditionally lower interest rates on the valuation of CFG’s pension plan liability and a deferred income tax adjustment from the implementation of the 2017 Tax Cut and Jobs Act. AM Best notes that while there is potential for CFG’s pension plan to be a further drag on capitalization in the future, definitive steps were taken to immunize the pension plan liability from further volatility in 2020 and it since has become a less material factor.
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