Jim Zelinski, a SCIF representative, said the fund asked to be unrated because "in our opinion we believe it's evident these rating agencies are used to looking at for-profit carriers, and can't completely understand or relate to or analyze a state fund's role as a non-profit carrier."

He said the fund is "financially strong. We are solvent, we have adequate reserves, our rates are adequate." In addition, he noted, the Oldwick, N.J.-based A.M. Best "itself noted that it expects the state fund to improve earnings and grow our surplus."

He said the fund is working with the state department of insurance on a plan "to increase surplus that may involve transferring some of our loss portfolio."

A.M. Best had said it was lowering the rating out of concern with the fund's substantial growth in the California workers' compensation market, and the resulting impact on its overall financial strength.

A.M. Best noted that the fund historically held a more favorable underwriting leverage position and substantial equity in its loss reserves, which provided a greater margin for error in pricing and reserving.

A negative outlook was assigned to the rating, Best said, out of a concern over the potential for future premium growth and its effect on capitalization.

A.M. Best found that after four straight years of operating losses and recent high premium growth, "underwriting leverage has weakened and no longer supports the Fund's risk based on Best's Capital Adequacy Ratio."

The fund's underwriting losses have increased each year since open rating began, and loss reserves for each accident year since 1995 have developed adversely through year-end 2001, A.M. Best said.

Also, the company expressed continuing concerns over premium adequacy. Given the growth in business and the high loss-cost trends in California, it said it also had questions about the fund's ability to properly service and account for all the new business, as well as accurately reserve for potential losses.

A.M. Best said the fund's large market-share concentration increases exposure to both man-made and natural catastrophe losses.

Over the next few years, A.M. Best said the rating outlook remains negative because adverse loss-reserve development on recent accident years might continue to dampen the fund's operating performance, further weakening capitalization in the face of additional premium growth.