AM Best has downgraded Quanta's financial strength rating to B++ from A-, as a result of a significant fourth quarter net loss of between $40m and $45m.
Quanta's fourth-quarter 2005 results include $12m of expenses associated with hurricane Wilma, and $10.2m of additional costs related to hurricanes Katrina and Rita, $5.5m related to a previously reported environmental loss and $8m-$13m of general reserve strengthening.
The company's results were also affected by severance charges of $5.8m associated with exiting catastrophe exposed lines of property reinsurance and technical risk property insurance other than program businesses.
Bob Lippincott, Quanta's interim chief executive, said: "Quanta's fourth quarter underwriting results clearly were not acceptable and do not represent the changes we are putting in place. We are disappointed that the impacts of the historic windstorm events, other costs related to exited lines and severance charges have contributed significantly to the negative ratings action by AM Best."
James Ritchie, Quanta's chairman, added, "Quanta had taken key steps that substantially reduce the Company's exposure to catastrophes, cut expenses, and increase our capital base. Despite our total capital of approximately $520m at 31 December 2005, our financial strength ratings will be downgraded.”
Friedman Billings Ramsey has been appointed as financial advisor to help evaluate strategic alternatives, including the potential sale of some or all of Quanta's businesses, and possible use of excess capital to repay debt or to return value to shareholders.
Quanta confirmed that it will continue to operate in business lines which do not require it to have an "A-" rating, and will evaluate whether it can continue to operate its remaining business lines. Quanta added that it will consider running off selected lines as an alternative to selling.
