AM Best has downgraded Californian program carrier Crusader Insurance Company for the second time in less than three years as it highlighted persistent erosion of policyholders surplus as a result of continued operating losses and concerns over the liquidity of its parent, Unico American Corporation.

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The downgrade of the Calabasas-based insurer’s financial strength rating from B++ to B and its long-term issuer credit rating from bbb to bb+ came as the agency also lowered the credit rating of parent Unico from “bb” to “b”.

The ratings on both entities have been placed under review with negative implications.

Crusader writes a number of programs, including apartments and commercial buildings; food, beverage and entertainment; garage and mercantile; and transportation.

It lost its A- financial rating in January 2019 as AM Best highlighted adverse operating trends.

In today’s announcement, the agency said the “marginal” “bb” rating of its parent reflected concerns that “there is substantial doubt that Unico will have sufficient cash to meet its operating and liquidity requirements as they become due over the next 12 months”.

AM Best added that while Crusader itself maintains sufficient liquidity, it may be adversely impacted by liquidity issues at its parent, which is already experiencing reduced financial flexibility.

“The rating downgrades also reflect Crusader’s unfavorable operating performance trends from 2016 through June 30, 2021, which have been primarily attributable to unprofitable underwriting results,” said the firm in a statement.

AM Best noted that in order to meet its capital obligations Unico is currently looking at multiple capital and liquidity alternatives.

“Each of these come with some level of execution risk or may not come to fruition at all. Therefore, the ratings of Crusader and Unico will remain under review while AM Best continues to hold discussions with the management team to discuss the progress of their plans to address the liquidity issues at Unico,” it continued.

According to statutory filings, Crusader ended last year with capital and surplus of $26.9mn, down from $46.5mn at the end of 2019.

The company, which is led by president and CEO Michael Budnitsky, fell to a $13.0mn pre-tax operating loss, the fourth year in a row that it reported a deficit.

Its combined ratio reached a high of 153.3 percent last year over that period.

Crusader is domiciled in California and licensed to write P&C business on an admitted basis in Arizona, California, Nevada, Oregon and Washington.

Crusader’s holding company Unico is publicly traded and listed on Nasdaq. Its shares closed down 5 percent at $3.55 today, or around 0.54x book value.