AM Best Downgrades Issuer Credit Rating of Catholic Order of Foresters

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

The Credit Ratings (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 (ERM).

The balance sheet assessment was lowered one notch to reflect COF’s declining trend of balance sheet metrics, with four of the past five years seeing surplus decreases. The negative outlooks continue to be placed on the balance sheet as metrics are expected to be pressured in the intermediate term. Declining capital has been attributable to break-even operations, which have been more than offset by unrealized capital losses and reserving impacts. Quality of assets is below average with allocations to below investment-grade bonds. The balance sheet profile is supported by low use of reinsurance and financial leverage. Liquidity capability is good, supported by a line of credit and Federal Home Loan Bank facility.

COF’s operating losses have been impacted by stagnant investment income and invested asset base, as well as modest gains to net yields. Net operating results have fluctuated recently with losses in three of the past five years.

Realized capital gains have offset these results over the same period. Over recent years, operating performance has been unfavorable compared with the adequate benchmark with profitability ratios below peers.

COF is a regional insurer in the Midwest targeting middle-income Catholic families, small business owners, pre-retirees and retirees. Corporate strategy has focused on premium diversification, which has been slow but continues to improve each year. In addition, AM Best notes a continued strategic movement toward non-interest-sensitive products. ERM capabilities are appropriate for the size and scale of operations.

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.

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