KMG America Corp. says it has hired an investment bank to negotiate with potential acquirers and merger partners because of a recent rating move.

KMG, Minneapolis, is the parent of Kanawha Insurance Company.

A.M. Best Company Inc., Oldwick, N.J., announced that it was changing the outlook on its A minus financial strength rating on Kanawha to “negative,” from “stable.”

The possibility that the operating company’s rating could decline may interfere with its efforts to operate in certain markets, the company says.

In related news, KMG is:

- Reporting a $9.4 million net loss for the first quarter on $53 million in revenue, compared with $1.2 million in net income on $42 million in revenue for the first quarter of 1996.

The loss was the result of efforts to take a more conservative approach to accounting for a tax asset and the company’s new medical stop-loss program, and the company would be reporting $1 million in operating income if the charges had not been taking, KMG says.

- Adjusting its stop-loss program by increasing prices, requiring that producers sell the stop-loss coverage together with other products, and increasing incentives for producers to sell group life, group disability and voluntary benefit products, KMG says.

- Paying $825,000 to settle a suit filed by subsidiaries of ING America, a unit of ING Groep N.V., Amsterdam.