A.M. Best Downgrades Ratings of American Community Mutual Insurance Company

• Press Release
• Source: A.M. Best Co.
• On 11:38 am EST, Thursday November 5, 2009

OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has downgraded the financial strength rating to C+ (Marginal) from B (Fair) and issuer credit rating to “b-” from “bb” of American Community Mutual Insurance Company (American Community) (Livonia, MI). The outlook for both ratings is negative.

The downgrades reflect an expected material net operating loss resulting from reserve strengthening, which will occur in third quarter 2009, with a corresponding decrease in surplus. An anticipated reduction in the company’s deferred tax asset in third quarter 2009 is expected to further decrease surplus. In addition, two surplus notes represent a significant portion of total surplus.

American Community’s premium revenue and net income are derived primarily from marketing major medical products to individuals and employer groups, chiefly in seven Midwestern states and Arizona. Although American Community intends in the near term to reduce its premium revenue to match its surplus base by eliminating or reducing unprofitable segments in certain states, A.M. Best believes its future operating results will continue to be challenged by an increasingly competitive major medical market dominated by larger managed care carriers with deeper network discounts.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

A.M. Best Co.
Analysts:
Brian Virostek, 908-439-2200, ext. 5531
brian.virostek@ambest.com
or
Jeffrey Lane, 908-439-2200, ext. 5567
jeffrey.lane@ambest.com
or
Public Relations:
Jim Peavy, 908-439-2200, ext. 5644
james.peavy@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
rachelle.morrow@ambest.com