FORT WAYNE, Ind.-K&K Insurance Group's longstanding ties with TIG Insurance Group appear to be ending.

Since 1986, Fort Wayne, Ind.-based K&K has been the exclusive managing general agency for Irving, Texas-based TIG on several sports, leisure and entertainment programs, including programs for professional sports teams and leagues, motor racing and amusement parks. About 20% to 25% of TIG's gross written premiums come through K&K.

Neither K&K nor TIG would comment on their relationship, but a number of observers who asked not to be identified say K&K is seeking new insurers to write the former TIG programs.

One of these could include K&K sister company Virginia Surety Co. Inc. Chicago-based Aon Corp., the parent company of K&K and Virginia Surety, is in the process of spinning off its underwriting operations.

In addition to TIG, K&K also is an MGA for OneBeacon Insurance Group, Westport Insurance Corp. and Great American Insurance Cos. on sports, leisure and entertainment business.

TIG Holdings Inc., the former holding company for TIG's insurance and reinsurance operations, has been fighting to turn itself around since its initial public offering in 1993 amid a softening market. Through the mid-1990s, TIG shifted the focus of its primary insurance business from general property and casualty to program business. It announced that it was considering a sale or restructuring of the company in 1998 amid a third-quarter 1998 loss of $46.8 million. Toronto-based Fairfax Financial Holdings Ltd. bought the company at the end of 1998 for $840 million (BI, Dec. 7, 1998).

Late last year, TIG received another blow when it lost its A- rating. Oldwick, N.J.-based A.M. Best Co. downgraded TIG's financial strength rating to B++, citing the company's protracted turnaround and limited flexibility in pricing and underwriting control. TIG maintains a significant concentration of business with a limited number of managing general agents, Best said.

Some brokers say that, with TIG's downgrade, it has been difficult to find excess coverage and that clients are requesting that their accounts be moved to a better-rated company.

"It's created a lot of work for everyone because we have to re-market accounts for our clients and make sure they are aware of those changes," said Paul Halloran, a vp specializing in entertainment for Near North Insurance Brokerage Inc. in Chicago, referring to TIG's downgrade. "Whether clients choose to move their accounts or not, they still need to have the option," he said.

Marc Blumencranz, executive vp of BWD Group L.L.C., a Jericho, N.Y.-based broker that specializes in professional sports, noted that he was "very concerned after TIG was downgraded, particularly with trying to secure excess liability insurance over a B++ carrier."

"The sports marketplace is clearly sharing the tightening of the insurance market, just as the typical P/C customer is, but in some respects to a greater extent because there are fewer carriers that write sports business," he said.

In a statement, Fairfax said that although it is "disappointed" by Best's downgrade, it believes "that various initiatives which are in the process should nevertheless allow TIG, with its statutory capital of approximately $900 million, to substantially continue to write its desired business."

Best said TIG's downgrade reflects the rating agency's belief that TIG's turnaround will be protracted due to its operating platform, which limits flexibility in pricing and underwriting control.

In the third quarter of 2001, TIG took a $309 million Canadian ($194.4 million) charge to strengthen reserves for 2000 and prior accident years. That reserve strengthening contributed to the overall $346 million Canadian loss ($217.6 million) Fairfax reported in 2001.

Matthew Coyle, a director with Standard & Poor's Corp. in New York, described TIG as "a work in progress" as it attempts to get its underwriting back in order and to an appropriate level.

"The main concern I have right now, in addition to earnings, is capital," Mr. Coyle said. TIG's risk-based capital levels are legally compliant, but they are approaching levels that warrant regulatory response, he said.

"Although it seems bleak and there are areas of concern, what gives me some confidence is the fact that (Fairfax) has contributed capital before" to TIG, Mr. Coyle said. "It's my belief it will do so in the future."

S&P lowered TIG's financial strength rating to BBB from BBB+ in the fourth quarter of 2001. The downgrade, which was tied to Fairfax in general, reflected the company's earnings problems and the charges taken to strengthen reserves, Mr. Coyle said.