AM Best has maintained the ‘under review with negative implications’ status for the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb” of Weston Insurance Company.
AM Best says these ratings reflect Weston’s balance sheet strength, which it categorises as adequate, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management.
The under review with negative implications status considers AM Best’s latest review of Weston and its parent, Weston Insurance Holdings Corporation, following the announcement of its pending acquisition of Anchor Specialty Insurance Company.
This status has been maintained based on revised plans that incorporate higher debt levels and an increased level of common equity needed to reduce financial leverage.
AM Best says the added debt will be used to facilitate the announced acquisition of Anchor Specialty Insurance Company and recapitalise it.
While the acquisition improves geographic diversification, the ratings agency notes that it also increases underwriting risk, given the significant amount of new risk being added to the organization from the new entity that has operated at a loss historically.
In addition, Weston Holdings plans to raise a higher level of common equity in its revised plan to quickly satisfy the new debt, redeem preferred shares and settle accumulated dividends, ultimately reducing the holding company’s financial leverage.
These actions, AM Best says, involve considerable execution risk.