Global ratings agency AM Best has placed the credit ratings of fronting and program specialist, Clear Blue Insurance Group, under review with negative implications, citing uncertainty around the firm’s ability to rely on certain letters of credit (LOC) posted to back reinsurance, as the investigation at Vesttoo continues.
Despite the move to place the ratings of the members of Clear Blue under review with negative implications, AM Best has maintained the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent).
The ratings agency notes that these ratings will remain under review pending discussions with Clear Blue, and importantly the firm’s ability to replace certain programs and/or LOC to allow for “proper reinsurance credit at the time of financial statement filings.”
Earlier this week, Clear Blue announced that it will no longer be using Vesttoo as reinsurance capacity on new or renewal programs, following allegations of fraudulent collateral issues at the insurtech.
Clear Blue stressed that its risk management processes have protected its claims paying ability, but did say that it may seek additional reinsurance to protect policyholder capital/surplus.
AM Best explains that on program involving collateral, Clear Blue does retain premiums on a funds-withheld basis or in trust accounts that remain available to pay claims associated with these programs.
“Although AM Best recognizes the uncertainty that still exists to the validity of the letters of credit in question, and Clear Blue is aggressively looking to address concerns, there is execution and timing risk associated with this process,” says the ratings agency.
By placing the ratings under review, AM Best is able to continue its discussions with Clear Blue management to determine the effectiveness of management initiatives designed to mitigate any potential impact to the company via additional reinsurer participation or protection of the balance sheet.
In response, Clear Blue has acknowledged the move by AM Best, and says that it is “highly confident” in its ability to meet the requirements, so its ability to replace certain programs and/or LOC to enable proper reinsurance credit, to continue to pay claims, and to replace Vesttoo reinsurance and collateral within a reasonable period, while maintaining its strong capital position and growth.
“In accordance with our strong enterprise risk management procedures, we have retained fully accessible premium that is more than sufficient to pay all claims on the affected programs. We are working diligently with brokers and reinsurers to relocate and replace the Vesttoo reinsurance as quickly as feasible, and do not anticipate any negative impact to Clear Blue or its policyholders.
“We look forward to working with AM Best to provide detailed updates on our progress and insight into our reinsurance, capital and risk structures in order to ensure the resolution and removal of the review status as soon as possible,” said Clear Blue.
AM Best said yesterday that will review the collateral arrangements of all fronting companies that it provides ratings for following the allegations surrounding Vesttoo.
