AM Best Removes From Under Review With Negative Implications, Assigns Negative Outlook to Best Meridian Insurance Company and Best Meridian International Insurance Company SPC

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 these Credit Ratings (ratings) is negative. These companies are collectively referred to as Best Meridian.

The ratings reflect Best Meridian’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.

This rating action reflects ownership’s commitment to re-capitalizing the business following deterioration in its risk-adjusted capitalization in 2021 and first half 2022. This deterioration was driven by severe losses at BMIC in 2021 due to the COVID-19 pandemic, as well as increases in reinsurance recoverables associated with a relatively new property/casualty reinsurance business, and deferred acquisition costs at BMIIC due to increased life insurance sales. In addition, capitalization through the first six months of 2022 remains pressured by a large mark-to-market loss on the asset portfolio and a sizable dividend paid out of BMIIC. To support capitalization, BMI Financial Group, the ultimate parent of BMIC and BMIIC, will make capital contributions in both fourth quarter 2022 and 2023, as well as suspend any planned dividend payments in 2023 to support the recapitalization of the business. However, AM Best remains concerned that further projected growth of the reinsurance recoverables, deferred acquisition cost balances, combined with volatile investment markets that may push the risk-adjusted capitalization, as measured by Best Capital Adequacy Ratio (BCAR), to a level no longer supportive of the current ratings. The potential for significant volatility in financial results affecting capitalization supports the continued negative outlook.

Previous pressure on capitalization from increased delinquencies in the mortgage book have largely dissipated through 2021 and interim 2022 as debtors either returned to good standing or Best Meridian successfully foreclosed on the associated property. A portion of the mortgage book remains in delinquency; however, the size of this book is now much smaller and loss prevention strategies have proven effective. Underwriting losses at BMIC on both life and health businesses due to COVID-19 continued into the first quarter of 2022, but were much smaller than in 2021. In the first half of 2022, underwriting losses were negligible and more than offset by investment income for net profitability at BMIC in the period.

The management team plans to restore BMIC to the capital position it enjoyed before incurring excess losses in 2021 through a series of capital injections in 2022 and 2023 to supplement earnings. In addition, capital contributions, and the suspension of the dividend are intended to support the capitalization of BMIIC.

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, has diligently worked with creditors to restore the mortgage portfolio and continues to refine the process of rigorous screening and selection of reinsurance customers and counterparties. The company has also shown a willingness to provide capital support when necessary. 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 Performance Assessments, 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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