Dividend payments to shareholders will be suspended because of the default, Quanta said in a statement Wednesday. The company said it had no outstanding borrowings on its credit line.

A.M. Best lowered Quanta's financial strength rating to 'B,' or 'fair,' from 'B++,' or 'very good.'

Chief Executive Officer Tobey Russ resigned in November after Quanta posted a third-quarter loss of $59.1 million resulting from hurricanes Katrina and Rita. The company lost another $54.8 million in the fourth quarter as it continued to incur catastrophe costs.

Quanta's preferred shares paying a 10.25 percent annual dividend have fallen 33 percent since they were first sold in December. The shares rose 19 cents to $16.69 with a yield of 15.4 percent in Nasdaq stock market trading.

Quanta's common shares fell 63 percent in the past year before Wednesday. They rose 21 cents to $2.52.

"The downgrade news was to some degree already in the stock," said Mark Dwelle, an insurance analyst at Baltimore-based Ferris, Baker Watts Inc. who has a "neutral" rating on the company.

Quanta said last month that a March downgrade by A.M. Best to 'B++' from 'A-' forced the insurer to stop seeking new business. The company said then it anticipated a further downgrade because of the decision.

Quanta previously sold specialty insurance, such as marine and aviation policies, and reinsurance for companies that sell property and other coverage. The company's existing policies have been placed in run-off, which means they won't be renewed.

Quanta will continue to operate its syndicate at insurance market Lloyd's of London, as well as an environmental consulting business, Chairman James Ritchie said in a statement.

A.M. Best is withdrawing all its Quanta ratings at the company's request, the rating agency said in a statement.

Quanta spokeswoman Sabrena Tufts didn't respond to a call for comment.

Storm losses also prompted Bermuda-based reinsurer PXRE Group Ltd. to stop seeking financial strength ratings in April.