OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a” (Excellent) of Benchmark Insurance Company (headquartered in Wayzata, MN), Benchmark Specialty Insurance Company (Little Rock, AR), American Liberty Insurance Company (Provo, UT) and 7710 Insurance Company (Summerton, SC). These companies are collectively referred to as Benchmark Insurance Group (BIG). Concurrently, AM Best has affirmed the Long-Term ICR of “bbb” (Good) of Trean Insurance Group, Inc. (Delaware) (Trean Insurance) [NASDAQ: TIG], the ultimate parent of BIG. The outlook of these Credit Ratings (ratings) is stable.
The ratings of BIG reflect its balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
BIG’s balance sheet strength assessment reflects a highly rated, diversified fixed-income portfolio and consistent loss reserve discipline offset by elevated net underwriting leverage and a sound, albeit declining, liquidity position. The group has significant reinsurance dependence that subjects it to material counterparty credit risk. However, to mitigate this credit risk, BIG holds approximately 80% in collateral on a funds-held basis or requires collateral in a trust or as a letter of credit from reinsurers not authorized in the insurance carrier’s state of domicile to secure recoverable balances. The group has diversified this credit risk related to ceded reinsurance and has no disputes for reinsurance recoverables deemed uncollectible.
The group reported declining operating results in 2021 as a result of several unusual underwriting losses. However, BIG’s operating performance assessment reflects its strong overall underwriting profitability and net investment income that has produced double-digit pre-tax operating results and returns on equity, which compare favorably with AM Best’s workers’ compensation composite’s five-year averages at Dec 31, 2021. In the first half of 2022, the group reported $12.6 million of operating income as a result of a rebound in underwriting profitability, as reflected in its 89.5% combined ratio, which improved from 91.4% in the first half of 2021.
AM Best views the group’s business profile as limited, as it reflects a concentration of business in the workers’ compensation line of business. To reduce its product concentration, BIG has added programs in accident & health, commercial auto, general liability and the homeowners lines of business, as well as fronting relationships for several captive insurers. Additionally, Trean Insurance and Beat Capital Partners Americas (Beat) announced a strategic partnership in July of 2022 via Trean’s recently formed subsidiary, Benchmark Specialty Insurance Company, to offer non-admitted excess & surplus products through newly established Beat-backed agencies.
Although BIG continues to maintain significant dependence on reinsurance, it now retains an increased percentage of risk from its more profitable programs. Given management’s extensive experience in providing a market for small workers’ compensation program carriers, BIG continues to reduce its overall credit risk to a manageable level with risk management capabilities in line with its business profile.
AM Best views BIG’s ERM structure as appropriate, as the group’s program includes risk appetite and tolerance statements that focus on concerns specific to its business profile. The group’s ERM framework benefits from an experienced board of directors and executive management teams at TIG and BIG, which are cognizant of the key elements in maintaining and enhancing a competitive advantage in their program niche.
At June 30, 2022 and Dec. 31, 2021, Trean Insurance reported total assets of $1.51 billion and $1.50 billion; total liabilities of $1.10 billion and $1.08 billion; and stockholders’ equity of $410.1 million and $421.9 million, respectively. The company’s total liabilities include outstanding debt from a five-year credit facility, at variable rates of interest, due May 26, 2025, of $29.6 million and $30.4 million, respectively. Adjusted and unadjusted debt leverage to tangible capital remained at 14.6% over both time periods. Trean Insurance’s interest coverage was 26.8 times at June 30, 2022, compared with 15.7 at Dec. 31, 2021. In August 2022, BIG issued a $50 million 20-year unaffiliated surplus note which, if included in the June 30, 2022 balances, produced adjusted and unadjusted debt leverage to tangible capital of 16.8% and 36.2% with interest coverage at 9.8 times.
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