The company then followed it up with a sudden management shakeup involving the departure of its chief executive John Smithson and chairman Frederick Anton. (See the Nov. 17 issue of National Underwriter.)

In its latest ratings downgrade, S&P cut counterparty-credit and financial-strength ratings for PMA's reinsurance unit?called PMA Capital Insurance?to "double-B" from "triple-B," while lowering counterparty-credit and financial-strength ratings for PMA primary writers to "triple-B-minus" from "triple-B," with all ratings on Credit Watch with "negative" implications.

These ratings actions reflect PMA Capital's "significantly diminished financial flexibility," said S&P credit analyst Laline Carvalho. She also observed that since the reserve-boost announcement in early November, the company's stock has been trading "significantly below book value," which hurts the insurer's ability to raise funds in financial markets.

Currently, she said, S&P believes PMA Capital has enough liquidity at the holding company to service interest payments during "the next 12 months."

Ms. Carvalho also worried that PMA Capital's "future strategic direction and organizational structure" remain unclear, citing the recent departure of the company's CEO and chairman, as well as the insurer's decision to exit the reinsurance business.

Furthermore, reserve adequacy is still a concern?"PMA Capital remains exposed to further reserve development at its operating subsidiaries," she said.

PMA Capital, she noted, recently announced it has engaged an outside actuarial firm to review reserve adequacy at its primary writers in the fourth quarter of 2003.

But PMA took a different view of its financial health, announcing its disagreement with S&P findings. "While we appreciate any rating agency's obligation to express its opinion," the company said, "we believe S&P's most recent action neglects to mention several facts that we believe are important."

The company noted, for example, that reserves at its insurance operations?known as PMA Insurance Group companies?were unaffected by the $150 million charge and that, accordingly, the charge did not affect insurance operations' statutory capital.

The company also said the risk-based capital ratio at its insurance operations remain healthy. PMA did not return calls seeking further comment.

S&P noted that at PMA's request, it will withdraw its ratings on operating units once the Credit Watch status has been resolved, which it expects will happen in the next two months.

The ratings agency said resolution of the Credit Watch issue depends on completion of the insurer's independent actuarial review on reserves. But S&P said it will continue to maintain ratings on PMA's outstanding debt.