Moody’s downgrades Penn National surplus notes

Moody’s Investors Service said it downgraded the surplus notes issued by Pennsylvania National Mutual Casualty Insurance Co. to Ba1 (hyb) from Baa3 (hyb), along with the insurance financial strength ratings of Penn National Insurance Group’s operating subsidiaries to Baa1 from A3.

The downgrades reflect continued uncertainty about legacy lead-paint claims, including potential challenges in collecting reinsurance recoverables on lead-paint claims, Moody’s said.

The downgrades also consider the company’s low operating profitability, the agency said.

The outlook is stable.

While Penn National’s earnings have improved due to relatively stable accident year combined ratios and lower catastrophe and weather-related losses, the uncertainty about legacy lead-paint claims could pressure future earnings, Moody’s said.

There are additional concerns about the company’s reinsurance recoverables related to multi-line reinsurance policies from the 1990s, which are subject to greater collection risk given the nature of the liabilities, the agency added.

The ratings also reflect the group’s established position in its regional independent agency markets, low operating leverage and a high quality investment portfolio, Moody’s said.

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