AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb+” (Good) of Catholic Order of Foresters (COF) (Naperville, IL). The outlook of the FSR is stable.

The Credit Ratings (ratings) reflect COF’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The negative Long-Term ICR outlook reflects COF’s declining trend of balance sheet metrics, with four of the past five years seeing surplus deceases. Declining capital has been attributable to strained earnings over the latest five-year period. While earnings have improved over the most recent two-year period, reserving and unrealized capital losses have continued to lower surplus levels. Quality of assets is below average with allocations to SBA securities and below investment grade bonds. The balance sheet profile is supported by low use of reinsurance and financial leverage. Liquidity capability is good, supported by a line of credit and Federal Home Loan Bank facility.

COF’s operating losses have been impacted by stagnant investment income, invested asset base and yields in its small business loan interest-only strip holdings and mortgages. Withdrawals and surrenders have contributed to negative cash flow for 2023. Over recent years, operating performance has been unfavorable compared with the marginal benchmark with profitability ratios below peers.

COF is a regional insurer in the Midwest targeting middle-income Catholic families, small business owners, pre-retirees and retirees. Premium and product diversification has been slow but continues to improve each year. ERM capabilities are appropriate for the size and scale of operations.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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