FOR IMMEDIATE RELEASE
OLDWICK - NOVEMBER 21, 2023 04:47 PM (EST)
AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” (Excellent) of the members of Clear Blue Insurance Group (Clear Blue) (Guaynabo, Puerto Rico). The outlook assigned to these Credit Ratings (ratings) is stable. See below for a detailed listing of members and ratings.
The ratings of Clear Blue reflect the group’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
Clear Blue’s ratings were placed under review with negative implications on July 25, 2023, as a result of the uncertainty surrounding Clear Blue’s ability to rely on certain letters of credit, posted to back reinsurance placed by Clear Blue with certain reinsurers in Vesttoo-related transactions. Of particular concern was the potential balance sheet implications, in addition to the execution and timing risk associated with replacing capacity or letters of credit.
Over the past few months, Clear Blue has successfully moved active programs to either new reinsurers or reinsurers on its existing panels took higher percentages. All of these contracts have been signed and are fully collateralized. All “run-off” programs which remain in place are collateralized by funds held in cash from written premium. However, additional collateral on these programs above the funds held has not been replaced.
Clear Blue did take a $33 million temporary reduction in surplus in its second quarter 2023 filings due to the commission strain on unearned premiums. However, the impact decreased to $16.36 million in third quarter 2023 filings and is expected to gradually decline over the next few quarters before disappearing by mid-2024. In addition to the temporary implications, the lack of replacement collateral on the “run-off” programs resulted in a $10.7 million write down of recoverables that resulted in an underwriting loss of the same amount in third quarter 2023. The lack of replacement collateral also exposes Clear Blue to adverse development on these run-off programs.
To solidify its balance sheet, Clear Blue was recently infused with $25 million, $15 million of which was funded by a line of credit at the holding company and an additional $10 million funded by an equity infusion from Pine Brook. Given these capital initiatives, Clear Blue’s ability to replace capacity on active programs and the relatively modest financial losses, AM Best continues to assess the company’s balance sheet strength level as very strong.
From an ERM perspective, AM Best notes it has become evident through documents associated with Vesttoo’s bankruptcy filing that fraud was at the heart of this episode. In response to this fraud, Clear Blue has implemented more rigorous procedures around securing, documenting and confirming letters of credit. AM Best believes these actions to be appropriate.
The performance of the retained run-off programs remains uncertain and could potentially impact Clear Blue financially and operationally. The stable outlook that has been assigned reflects AM Best’s view that the actions taken by Clear Blue should continue to mitigate the potential negative impacts. However, if this view were to change, AM Best may need to take negative rating action.
The FSR of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) have been removed from under review with negative implications with a stable outlook assigned for the following property/casualty subsidiaries of Clear Blue:
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.