AM Best has downgraded the Financial Strength Rating to C++ (Marginal) from B- (Fair) and the Long-Term Issuer Credit Ratings to “b” (Marginal) from “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). 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 assesses as very weak, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.
The rating downgrades reflect a decline in CFG’s overall balance sheet strength to an assessed level of very weak from weak, relating to a significant decline in the group’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), in the first quarter of 2023. The company continued to incur operating losses related to declining net premium written and the continued adverse mortality experience from the effects of the COVID-19 pandemic on the senior market, although death benefits in the first quarter of 2023 were lower than the same period in the prior year. In prior quarters, the group had also revised upward its reserve estimates related to an unclaimed property review.
The ratings were put under review shortly after the announcement by CFG on June 29, 2021, that its board of directors had approved a strategic transaction with Constellation Insurance Holdings, Inc. (Constellation), that would include 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 acquisition of CFG by Constellation would provide CFG 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 anticipated closing date has been pushed back several times and not all regulatory approvals have been obtained. The negative implications status reflects AM Best’s concerns around the potential for continued losses and the level of capital going forward, especially should the transaction not occur. The ratings will remain under review until the transaction comes to a conclusion and AM Best evaluates the overall impacts.
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