Catholic Order of Foresters faces negative outlook from AM Best

In November 2024, AM Best announced a revision of the outlook for the Long-Term Issuer Credit Rating of Catholic Order of Foresters, headquartered in Naperville, Illinois, changing it from stable to negative. The agency affirmed a Financial Strength Rating of B++ (Good) and a Long-Term Issuer Credit Rating of 'bbb+' (Good) while marking the outlook of the Financial Strength Rating as stable. This adjustment highlights concerns about the declining trend of balance sheet metrics over the past five years, where four out of those five years recorded decreases in surplus. Additionally, the report noted strained earnings have contributed significantly to this decline in capital. Recent improvements in earnings during the last two years have not offset ongoing issues related to reserving and unrealized capital losses, leading to continued reductions in surplus. Catholic Order of Foresters' assets are characterized as below average quality, with a considerable allocation towards Small Business Administration (SBA) securities and below-investment-grade bonds. Despite the firm's good liquidity supported by a line of credit and a Federal Home Loan Bank facility, operating losses are exacerbated by stagnant investment income and a diminishing asset base. The negative cash flow reported in 2023 can be attributed to withdrawals and surrenders, which have been problematic for the organization. Over the years, operating performance has remained unfavorable compared to the marginal benchmark, with profitability ratios consistently trailing behind peer organizations. While there have been improvements in product and premium diversification, such progress has been slow, emphasizing the need for a more robust operational strategy that could enhance the organization's stability moving forward. Overall, the report raised serious concerns regarding the financial health of Catholic Order of Foresters and its ability to navigate these challenging economic conditions.