S&P Lowers BancInsure
Standard & Poor’s lowered its counterparty credit and financial strength ratings on BancInsure Inc. to “A-” from “A”. The outlook is stable. The downgrade is based on the company’s poor operating performance for the last several years and lower projected earnings. It also reflects concerns regarding the company’s declining capital base and reduced level of financial flexibility, which stems from future reinsurance availability. S&P believes this reduction in operating performance is primarily driven by fierce competition in BancInsure’s niche market of small community banks, which S&P does not believe will lessen in the immediate future. This is somewhat mitigated by actions the company has taken over the past years to strengthen management and change its pricing philosophy as well as by the company’s strong ties to the banking community.
The company’s earnings have been below normal in recent years because of very tough competition in its core business. Although BancInsure provides a wide variety of products, its policyholders are all community bankers. S&P believes this concentration exposes the company’s earnings to volatility from the effects of business cycles and other changes in its operational and economic environment.
Liquidity has declined over a five-year period from 1996. S&P believes this decline is partially attributable to the profit commissions practice changes made in 1999 and underscores the contemporaneous decline in operating performance.
Capitalization is extremely strong, however, S&P has some concerns regarding the declining trend of the capital position. The company’s surplus decreased to $20 million as of Sept. 30, from $26 million at year-end 1999.
In 1998, BancInsure appointed a president and chief executive officer for the first time, having been previously managed by a committee of bankers. The company has taken a number of steps to formalize its management structure and increase the depth of its insurance staff through external hires. S&P believes these actions have strengthened management and positioned the company for profitable growth.