Rating agency A.M. Best Co. Inc. has downgraded the financial strength rating of risk retention group Indemnity Insurance Corp. to B (fair) from A- (excellent).

Best also placed the Sparks, Md.-based company, which provides various lines of liability coverage to the hospitality and entertainment industries, under review with negative implications.

The rating downgrades were driven by the “precipitous decline in IIC's risk-based capitalization due to an unexpected decrease in surplus, and as a consequence, an increase in its premium leverage,” Oldwick, N.J.-based Best said in a statement Tuesday. “The company's unanticipated decline in risk-based capitalization fell well below A.M. Best's required capitalization levels.”

Disappointed by the downgrade, IIC issued a statement Tuesday saying it is committed “to demonstrate excellence in balance sheet strength and operating performance in the months to come.” IIC said it had held a Best rating of A- (excellent) since its initial rating date in April 2008.

“We are very proud of our superior profitability and confident that our plans to strengthen our risk-based capital will return us to our prior A- rating in the future,” IIC Interim President Sean Wright said in the statement. “We will continue to build on IIC's fundamental strength and unique niche in the hospitality and entertainment industries.”

This month, IIC's board of directors announced that it had relieved Jeffrey B. Cohen of his duties as the company's president and CEO and had installed a new management team now headed by Mr. Wright; David Koehler, chief financial officer; and Phillip Metcalf, general counsel.

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The new management team is supported by key department heads Frank Nerney, vice president of underwriting, and Scott Wessing, vice president of claims.

Having established itself as a leading commercial general liability insurer in the hospitality and entertainment industries, IIC will continue to leverage its strategically developed national distribution platform and generous commission program for retail agencies and wholesale brokerages, the company said in the statement.

In addition to commercial general liability coverage, IIC provides liquor liability, slip and fall, and assault and battery coverage to night clubs, bars, restaurants and adult entertainment venues.

Domiciled in Wilmington, Del., it is authorized under the Federal Liability Risk Retention Act to operate in 35 states.