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A.M. Best Co. has downgraded the financial strength rating to “B” (Fair) from “B++” (Very Good) and the issuer credit rating (ICR) to “bb+” from “bbb” of Irish insurer Primary Insurance Company Limited (PICL). Best also changed the Company’s “under review status” to developing from negative.

“The downgrade reflects weakening in PICL’s risk adjusted capitalization due to deterioration in its financial performance caused partly by reserve strengthening in its commercial small to medium-sized (SME) account in 2006,” said Best. “Performance has also been affected by higher than anticipated reinsurance costs, further softening in PICL’s main lines of business and high expenses caused by a reduction in the level of business written.”

Best noted that “whilst the reduction in business written will benefit PICL’s risk adjusted capitalization, the company is dependent on financial support from its ultimate parent, Primary Group Limited (PGL) (Bermuda).”

Best also indicated that the ratings would remain under review while it “assesses the impact of management actions PGL proposes to take to strengthen risk-adjusted capitalization. If PGL provides additional explicit support, then PICL may be able to recover a secure rating. However, in the absence of any action from PGL, a further downgrade is likely.”