CRMH Crm Holdings, Ltd. - Common Shares (MM)

A.M. Best Co. has downgraded the financial strength rating (FSR) to B++ (Good) from A- (Excellent) and issuer credit rating (ICR) to “bbb” from “a-“ of Majestic Insurance Company (Majestic) (San Francisco, CA). A.M. Best also has downgraded the FSR to B+ (Good) from B++ (Good) and ICR to “bbb-”from “bbb” of Twin Bridges (Bermuda) Ltd. (Twin Bridges) (Hamilton, Bermuda).

Concurrently, A.M. Best has downgraded the ICRs to “bb” from “bbb-” of the ultimate parent, CRM Holdings, Ltd. (CRMH) (Hamilton, Bermuda) [NASDAQ: CRMH], Embarcadero Insurance Holdings, Inc. (Embarcadero) (San Francisco, CA) and CRM USA Holdings, Inc. (CRM USA) (Wilmington, DE).

Additionally, A.M. Best has downgraded the debt ratings to “b+” from “bb” for the trust preferred securities of CRM USA and the surplus notes of Embarcadero. All ratings have been placed under review with negative implications. (See below for a detailed listing of the debt ratings.)

These rating actions reflect A.M. Best’s concern over the potential impact on Majestic and Twin Bridges due to the issues faced by their affiliate, Compensation Risk Managers LLC (CRM LLC) and CRMH. The issues stem from a “Notice of Imminent Enforcement Action” filed by the New York State Office of the Attorney General, which intends to file civil claims against CRMH and CRM LLC and certain directors and officers to seek redress of allegedly unlawful practices. Furthermore, the New York State Workers’ Compensation Board (WCB) has commenced a lawsuit against CRMH on its behalf and in its capacity as successor in interest to the workers’ compensation group’s self-insurance trusts in New York, which were previously managed by CRM LLC. The concerns at CRMH are further compounded by the sizeable deterioration in its overall earnings and the increased level of dependence on Majestic to support holding company operations.

The ratings will remain under review until the financial impact of the lawsuits against CRMH and CRM LLC are evaluated and management provides A.M. Best with additional information that addresses any funding sources, which may be required as part of the legal actions.

The following debt ratings have been downgraded and placed under review with negative implications:

CRM USA Holdings, Inc.—

-- to “b+” from “bb” on $35 million 8.65% junior subordinated debt securities, due 2036  

Embarcadero Insurance Holdings, Inc.—

-- to “b+” from “bb” on $8 million LIBOR+ 4.2% surplus notes, due 2033  

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, which 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.