AM Best has removed Clear Blue Insurance Group from under review with negative implications. The ratings company has also affirmed the insurance company’s financial strength rating of “A-” (Excellent) and the long-term issuer credit rating of “a-” (Excellent). Clear Blue’s ratings were placed under review with negative implications in July, due to the uncertainty surrounding Clear Blue’s reliance on certain letters of credit (LOCs). The LOCs were posted to back reinsurance placed by the company with certain reinsurers in Vesttoo-related transactions. Vesttoo offered access to capital markets through insurance-linked securities as an alternative form of reinsurance. Captive Insurance Times investigated the allegations of fraud in September. The ratings company had concerns with potential balance sheet implications, in addition to the execution and timing risk associated with replacing capacity or letters of credit. However, the new ratings of Clear Blue reflect the group’s balance sheet strength, assessed by AM Best as “very strong”. The ratings also credit Clear Blue’s adequate operating performance, limited business profile and appropriate enterprise risk management. Justifying the rating, AM Best says: “To solidify its balance sheet, Clear Blue was recently infused with US$25 million, US$15 million of which was funded by a line of credit at the holding company and an additional US$10 million funded by an equity infusion from Pine Brook. Given these capital initiatives, Clear Blue’s ability to replace capacity on active programmes and the relatively modest financial losses, AM Best continues to assess the company’s balance sheet strength level as “very strong”. AM Best acknowledges that: “It was evident through documents associated with Vesttoo’s bankruptcy filing that fraud was at the heart of this episode.” The ratings company asserts that Clear Blue have introduced appropriate and more rigorous procedures around securing, documenting and confirming letters of credit. The outlook of the credit ratings of the insurance company’s subsidiaries are stable.
