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Best’s News & Research Service - August 29, 2019 03:39 PM (EDT)

AM Best Downgrades Credit Ratings of Safepoint Insurance Company

  • August 29, 2019 03:39 PM (EDT)
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Oldwick //BestWire// - AM Best has downgraded the Financial Strength Rating to B- (Fair) from B (Fair) and the Long-Term Issuer Credit Rating to “bb-“ from “bb” of Safepoint Insurance Company (Safepoint) (Tampa, FL). Concurrently, the outlook of these Credit Ratings (ratings) has been revised to negative from stable.

The ratings reflect Safepoint’s balance sheet strength, which AM Best categorizes as weak, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

The downgrades reflect pressure on Safepoint’s overall balance sheet strength due to a significant increase in retained exposure based on modeled risks, partially resulting from a change to the reinsurance program that materially lowered ground-up protection as compared with 2018. Negative pressure remains reflective of potential changes in the financial condition of the enterprise, which could limit the support provided to Safepoint. Safepoint’s overall balance sheet strength also continues to be impacted by elevated underwriting leverage and adverse reserve development. The negative outlooks also reflect concern over the management of risk, as it relates to the elevated exposure retained on a Florida book that is highly susceptible to severe weather activity. Furthermore, operating performance has deteriorated in recent years due to severe litigated losses, adverse reserve development and hurricane activity. While corrective actions have focused on improving performance through implementing water caps and managing expenses related to inter-company relationships, results have not yet experienced material improvement.

Safepoint’s weak balance sheet strength reflects sizeable retained exposure for tail events that is materially different than what AM Best reviewed in the prior rating cycle. Also influencing the company’s balance sheet assessment is elevated underwriting leverage, which is influenced partially by material catastrophe reinsurance protection and consecutive periods of adverse loss reserve development primarily driven by a rise in the severity and frequency of litigated water claims. While adverse development has persisted, improvement is expected at Safepoint given the purchase of an adverse development cover with an affiliated company in 2019. Operating performance has been challenged in recent years due to several factors that have led to results that compares unfavorably against the composite. While Safepoint plans to diversify geographically, the current footprint is focused primarily on Florida homeowners business. As a result, the company continually examines hurricane exposure through deterministic and stress testing, as well as accumulation analyses; however, there is considerable tail risk. While ERM is viewed currently as appropriate, AM Best will continue to monitor the effectiveness of the program given the high-retained exposures.

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 Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry.

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