A.M. Best has placed the “A-minus” financial strength rating of Newark, N.J.-based surety writer International Fidelity Insurance Company (IFIC) under review with negative implications, following IFIC’s announcement that it will refile its year-end 2013 statutory statement.
The refiling comes after the surety company uncovered that its former chief financial officer misappropriated funds and entered into unauthorized investments.
The rating agency action applies to subsidiary, Allegheny Casualty Company as well.
The company has requested that its regulator grant a 90-day filing extension for the refiling of the annual statement as well as an extension of 90 days to file the Mar. 31, 2014 quarterly statement.
Although the majority of these funds have been recovered, the company will record significant investment losses, which are expected to reduce surplus by approximately 30 percent, Best said.
These events call into question the effectiveness of the group’s risk management, the rating agency added, noting that IFIC is conducting a full operational review that will result in the implementation of new corporate governance policies and procedures to mitigate the potential of such events occurring in the future.
Still, the success of such actions will not be readily apparent over the near term, Best said in its announcement.
Best noted revised projected 2013 statements currently indicate that “the group’s capitalization will continue to comfortably support it current ratings.”
In a separate statement, IFIC highlighted Best’s reference to the fact that capital level still supports current ratings. Also noting that Best said the rating would remain under review until the 2013 refiling and first-quarter 2014 filing, IFIC management said it is confident the amount of forecasted adjustments are “accurate and will not increase.”
“IFIC management feels confident that once the rating agency has time to review the restatement, as well as other internal control measures being put into place, that it will take IFIC out from under review and the A- (“Excellent”) stable rating will again be affirmed.”
IFIC said it has self-reported the events and impact of its former CFO’s malfeasances to the New Jersey Department of Banking and Insurance, its outside auditors, Ernst & Young, its agents, employees, its reinsurers, U.S. Treasury and A.M. Best.
Headquartered in Newark, New Jersey, International Fidelity Insurance Company is the largest privately owned, independent monoline regulated insurance company in the United States specializing in surety.
Sources: A.M. Best, International Fidelity Insurance Company