Best’s News & Research Service - September 08, 2021 12:19 PM (EDT)
AM Best Affirms Credit Ratings of Benchmark Insurance Group Members and Trean Insurance Group, Inc.
- September 08, 2021 12:19 PM (EDT)
Oldwick //BestWire// - AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” (Excellent) of Benchmark Insurance Company (headquartered in Wayzata, MN), American Liberty Insurance Company (Provo, UT) and 7710 Insurance Company (Summerton, SC). These companies collectively referred to as Benchmark Insurance Group (BIG). Concurrently, AM Best has affirmed the Long-Term ICR of “bbb” (Good) of Trean Insurance Group, Inc. (Delaware) (Trean Insurance) [NASDAQ: TIG], the ultimate parent of BIG. The outlook for this Credit Rating (rating) is stable.
The ratings of BIG reflect its balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
BIG’s balance sheet assessment reflects moderate net underwriting leverage, a sound liquidity position, a highly rated, diversified fixed-income portfolio and consistently favorable loss reserve development. However, the group has significant reinsurance dependence that subjects it to material counterparty credit risk. To mitigate this credit risk, BIG holds collateral on a funds-held basis, or requires collateral in a trust or as a letter of credit, to secure recoverable balances from reinsurers not authorized in the insurance carrier’s state of domicile. The group has diversified this credit risk related to ceded reinsurance and has no disputes for reinsurance recoverables deemed uncollectible.
The strong operating performance assessment reflects the group’s consistent underwriting profitability and net investment income that has produced double-digit returns on revenue and equity, which compares favorably with AM Best’s workers’ compensation composite’s five-year averages at Dec 31, 2020. The group’s operating profitability decreased through the first six months of 2021 as it reported decreased underwriting results with a combined ratio of 91.4, which increased from 85.8 in the first half of 2020. The increase was primarily attributable to several homeowner losses stemming from the Texas winter freeze and an unusual commercial mutli-peril loss stemming from automobile collisions that resulted in the collapse of a commercial building.
AM Best views the group’s business profile as limited, as it reflects a concentration of business in the workers’ compensation line of business and geographic concentration in two states - California and Michigan, where approximately 51% of its business is generated. To somewhat reduce this concentration, BIG has added programs - most notably in Texas - in accident & health, commercial auto, general liability and the homeowners lines of business, as well as fronting relationships for several captive insurers.
Although BIG continues to maintain significant dependence on reinsurance, it has recently begun to retain a percentage of risks from its more profitable programs. However, given management’s extensive experience in providing a market for small workers’ compensation program carriers, it continues to reduce its overall credit risk to a manageable level with risk management capabilities in line with its business profile.
AM Best views BIG’s ERM structure as appropriate, as the group’s program includes risk appetite and tolerance statements that focus on concerns specific to its business profile. Its ERM framework benefits from an experienced board of directors and executive management teams at TIG and BIG that are cognizant of the key elements in maintaining and enhancing a competitive advantage in their program niche.
At June 30, 2021 and December 31, 2020, Trean Insurance Group reported total assets of $1.41 billion and $1.37 billion; total liabilities of $987.8 million and $969.7 million and stockholders’ equity of $417.3 million and $410.1 million, respectively. Total liabilities include outstanding debt from a five-year credit facility, at variable rates of interest, due May 26, 2025, of $31.1 million and $31.6 million, respectively. Adjusted and unadjusted debt leverage to tangible capital was 10.6%, a decrease from 11.2% at the prior year-end and a 13.2% a decrease from 14.0% at the prior year-end.
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 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.