AM Best Removes Under Review with Negative Implications and Affirms Credit Ratings of Best Meridian Insurance Company and Best Meridian International Insurance Company SPC; Assigns Negative Outlooks

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” (Excellent) of Best Meridian Insurance Company (BMIC) (Miami, FL) and Best Meridian International Insurance Company SPC (BMIIC) (Grand Cayman, Cayman Islands). The outlook assigned to the Credit Ratings (ratings) is negative.

The ratings reflect BMIC’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

The negative outlooks reflects the declining trend in risk-adjusted capitalization measures driven by deterioration in the quality of the mortgage portfolio at both companies and a sharp increase in reinsurance recoverables associated with a relatively new property/casualty reinsurance business at BMIIC. In addition, during the first six months of 2021, the growth of capital and surplus has been impacted negatively by sizeable underwriting losses related to elevated death claims from the COVID-19 pandemic.

While the organization has a successful history of profitable returns on its directly issued mortgage portfolio, the properties are concentrated in Florida, which experienced significant economic downturn during 2020 due to the COVID-19 pandemic. As a result, close to one-half of the mortgage portfolio was either past due or in foreclosure status at year-end 2020. However, the mortgage portfolio has a relatively low loan-to-value ratio with high quality properties, which has allowed the organization to restore the mortgages gradually to good standing during 2021.

The growing capital pressure from the high reinsurance recoverables is due to increased volume of unrated counterparties at BMIIC. The company has a rigorous screening process and contractual measures in place to reduce the risk of disputes and nonperformance of counterparties. Since BMIIC entered the property/casualty reinsurance business in 2018, 100% of recoverables has been collected with no disputes. However, AM Best remains concerned that further projected growth of the reinsurance recoverables balances may push the risk-adjusted capitalization, as measured by Best Capital Adequacy Ratio (BCAR), to a level no longer supportive of the current ratings.

AM Best notes that the company has demonstrated an ability to manage through and mitigate some of the negative impacts of the aforementioned developments. The company implemented increases in rates and fees for its life/health policies, is diligently working with creditors to restore the mortgage portfolio and continues to refine the process of rigorous screening and selection of reinsurance customers and counterparties. AM Best will continue to monitor the organization’s results to see if these measures will prove sufficient to curb the negative trends in risk-adjusted capitalization measures.

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.

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