WARRANTY GOLD downgrade

[Q45tech]

OLDWICK, N.J., MAY 23, 2003A.M. Best Co. has downgraded the financial strength rating to B (Fair) from B++ (Very Good) on National Warranty Insurance Risk Retention Group (NWIC) (Lincoln, NE). The rating has been placed under review with negative implications.

A.M. Best believes the business and liquidity positions of NWIC are adversely affected by a recent dispute with the purported obligor regarding the non-payment of claims on a program under a bordereaux assignment agreement entered into December 2002. Under the agreement, NWIC was to remain as the third party administrator. In response to the unpaid claims, a number of lending institutions have notified dealers that they will not lend money on NWIC insured vehicle service contracts. Consequently, NWIC may lose most of its other business because of the refusal of lending institutions to finance. The potential unpaid claims related to the disputed program may exceed $60 million. In A.M. Best's opinion, NWIC's dispute could significantly impair the organization's ability to satisfy its policyholders' obligations.

The downgrade and under review status reflect NWIC's difficulties in securing support for the immediate financial restructuring of the bordereaux. Even if a proposed workout plan on the bordereaux dispute is secured, this initiative would not measurably mitigate the operational risk factors exposing the organization's assets to further erosion. The proposed workout plan would involve a significant loan from NWIC to the obligor to initiate claim payments.

Additionally, NWIC has indicated its independent auditor will not issue an opinion in the 2002 Independent Auditor's Report due to questions on overall reserving adequacy, including potential liabilities related to the aforementioned dispute. Therefore, surplus declines may also be driven by miscalculation of its reported liabilities. Through the first quarter 2003, NWIC also reported continued deterioration in operating performance.

A.M. Best will continue to monitor the company's progress on these issues. Nevertheless, further downgrades are possible should ongoing financial restructuring of the bordereaux and a completed reserve analysis fail to adequately resolve A.M. Best's concerns with regard to liquidity and capitalization. A.M. Best downgraded the rating on March 7, 2003, due to deterioration in performance during 2002, reserve uncertainty and capital and liquidity concerns, which was only alleviated by a capital infusion of $4 million.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source.

link to am best report:

http://www3.ambest.com/frames/...tab=- 1&altsrc=13&altnum=&refnum=6555465777484655

[Q45tech]

What that means is they better find another 6,000-10,000 customers fast to keep the p**zi type plan going.

With interest rates so low it is getting impossible for these companies to function at only $1200 per contract. They need to charge $2200 to cover the typical 5 cents per mile for covered items[repairs] over the 30-40k period.

[EWT]

Is this the same company as Warranty Gold? I can't find any indication they are the same company. NWIC declared bankrupty in the Cayman Islands on 6/6 (Can't provide a link because it's from Lexis/Nexus).

[Q45tech]

They administer the Warranty Gold program however WG says:

"How do you know you can trust Warranty Gold? In addition to an outstanding rating with the Better Business Bureau and Web Assurance Bureau, Warranty Gold has put the processes into place to secure the investment that each of our customers make in our products. We establish a "Trust Reserve" account for every service contract that is purd. The "Trust Reserve" is managed by our Administrator to pay your claims for the life our you contract. Our Administrator reinsurers the "Trust Reserve" twice to adequately cover all claims today and tomorrow. The reinsurers are rated "A" (Excellent) by A.M. Best and carry Claims Paying Ability Rates of "A+" from Duff & Phelps, and "A" from Standard & Poors, and hold an Insurer Solvency Rating of "A3" from Mood's. Your Service contract is absolutely reliable and secure."

As I understand it {but I may be wrong} different years, makes, dates, or contracts may have different administrators under Warranty Gold umbrella?

[Jberger]

Sounds like a typical re-insurance plan with partial escrow to me.

They probably bundled the policies by risk and expiration so while the paperwork might get messy, there is probably someone out there to actually pay a claim.

Almost all insurers are required to be re-insured by state regulators to maintain the integrity of the network. So there's almost always a bailout system, but the paperwork can be a pain in the A*&#%)(*&#%.

[greg_atlanta]

Sounds like a good reason NOT to buy an extended warranty with a new car purchase.... company could be out of business 4 years later.

Makes the Lexus 3 year 100K miles on any used car under 60K miles look pretty good!!! (granted, their "certified" cars are way overpriced)

[Q45tech]

But you get to pay one way or the other...........really best to just start a saving account for your brand new car putting 5 cents per mile extra away..........by 100k you'll have $5,000 plus interest to DECIDE if you like the car to do some serious rebuilding or add to the trade in allowance/sale price and dump the beauty.

Owners grossly under estimate the TOTAL cost of driving.

[EWT]

It sounds like some Warranty Gold service contracts written through the bankrupt company are no longer being honored: http://www.journalstar.com/bus...59400 Yet another reason IMO to never buy anything but a manufacturer extended warranty.

[Q45tech]

Many of these non factory service insurance companies are just sales marketing companies [ the part you see and deal with first]and after they take their cut they send the remainder of your money to an administrator who deals with you thereafter.

When the administrators go bust, your money is gone and it doesn't make much sense to sue a bankrupt administrator.

[911/Q45]

I think they went broke from all the clever NICO guys that rebuilt their Qs under warranty!

[Shayne I30]

I purchased a warranty gold warranty for my pre infiniti 1997 explorer. What a mistake. I had four claims over the life of the contract ($120 ABS sensor, $350 AC Accumulator, $150 tie rod, and $250 EGR valve replacement). This was their Platinum plan that was supposed to cover just about everything. Only the ABS sensor repair and the tie rod repair were paid. However, they would not pay to realign the front end after the tie rod work. Also, they denied the A/C work, b/c the repair facility indicated the old part had rust on it. They denied the EGR, b/c they do not cover any emmissions parts. I paid $1200 for the policy and did not even begin to get out of it what I paid for it. I say either buy a factory warranty or follow Q45tech's suggestion and just stash extra service/repair money away.