OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb” of Weston Insurance Company (Weston) (Coral Gables, FL). The outlook assigned to these Credit Ratings (ratings) is negative.
The ratings reflect Weston’s balance sheet strength, which AM Best categorizes as adequate, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).
Weston recently converted all outstanding preferred shares, accumulated dividends and a bridge loan into common equity at its ultimate parent, Weston Insurance Holdings Corporation. As a result, the financial leverage at the parent company, which is embedded within Weston’s overall balance sheet assessment, significantly improved as compared with when the ratings were placed under review on Nov. 19, 2019. Concurrently, Weston experienced surplus erosion through the first six months of 2020, driven by assumed catastrophe losses from newly acquired sister company, Weston Specialty Insurance Company (formerly Anchor Specialty Insurance Company), and the liquidation of the wholly-owned Weston Select Insurance Company to facilitate the purchase of Weston Specialty Insurance Company. The reduction in capital, combined with the purchase of less catastrophe reinsurance protection at renewal, drove a material decline in risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). These unfavorable trends are reflected by the negative outlook that has been assigned to the ratings.
Operating performance, categorized as marginal, experienced volatility driven by the aforementioned assumed losses; however, AM Best expects any additional near term losses to be mitigated by changes in the quota share treaty, which include no further retained catastrophe losses subject to a $20 million aggregate limit. The limited business profile continues to reflect product and geographic concentrations that carry above average exposure to severe weather losses. Concern has also developed regarding Weston’s ERM program and its ability to mitigate ongoing pressures effectively, given the observed increase in retained exposure at tail events. This concern is highlighted by the hardening reinsurance market given Weston’s business model, which strategically relies on reinsurance to generate ceding commissions.
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