The company suffered significant fall in its surplus, to $710,000 at the end of last year, which is well below the $4 million minimum reserve required by the New Jersey Department of Banking and Insurance. The New York-based S&P's "R" rating for Security Indemnity reflects the company's state of rehabilitation, S&P said.

Holly Bakke, banking and insurance commissioner for New Jersey, told National Underwriter that under the rehabilitation, Security Indemnity cannot send out renewal notices for its 21,000 auto insurance policies, starting with those up for renewal at the beginning of September. She also noted that Security Indemnity must also send out mid-term cancellation notices for its commercial policies by the end of this month.

"Our goal is to protect the policyholders and to try to rehabilitate the company. Our department is basically running the company at this point," Commissioner Bakke said.

Ovadiah Jacob, analyst at the New York-based S&P, explained that the fall in reserves by Security Indemnity was caused by an "extended reinsurance contract dispute" between Security Indemnity and General Motors Corp.'s insurance division. "And Security Indemnity suffered losses as they were forced to handle the claims directly," Mr. Jacob said.

When Security Indemnity's surplus fell, New Jersey state officials acted to protect the company's policyholders, putting the insurer under rehabilitation, S&P said.