AM Best has updated the ratings of Puerto Rico-based Clear Blue Insurance Group, with the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” (Excellent) being affirmed for Clear Blue’s members. These ratings, previously under review with negative implications, now have a stable outlook.
Clear Blue’s ratings reflect the group’s strong balance sheet, assessed by AM Best as very strong, along with its adequate operating performance, limited business profile, and appropriate enterprise risk management (ERM).
The FSR and Long-Term ICRs for the following property/casualty subsidiaries of Clear Blue have been affirmed with a stable outlook:
The group’s ratings were initially placed under review on July 25 due to uncertainties regarding Clear Blue’s reliance on certain letters of credit backing reinsurance in Vesttoo-related transactions. Concerns included potential balance sheet implications and risks associated with replacing capacity or letters of credit.
In recent months, Clear Blue has transitioned active programs to new or existing reinsurers, with all contracts fully collateralized. However, additional collateral for “run-off” programs, beyond funds held in cash from written premiums, has not been replaced.
Clear Blue reported a temporary $33 million reduction in surplus in its second quarter 2023 filings due to commission strain on unearned premiums. This impact decreased to $16.36 million in the third quarter of 2023 and is expected to decline, resolving by mid-2024. Additionally, a $10.7 million write down of recoverables resulted in an underwriting loss in the third quarter due to unreplaced collateral on “run-off” programs, posing a risk of adverse development.
To strengthen its balance sheet, Clear Blue received a $25 million infusion, including a $15 million line of credit from its holding company and a $10 million equity infusion from Pine Brook. Following these capital initiatives and the successful replacement of capacity on active programs, AM Best maintains its assessment of Clear Blue’s balance sheet as very strong.
Regarding ERM, following revelations of fraud in Vesttoo’s bankruptcy filings, Clear Blue has enhanced procedures for securing, documenting, and confirming letters of credit, which AM Best views as appropriate.
While the performance of retained “run-off” programs remains uncertain and may impact Clear Blue financially and operationally, the stable outlook assigned by AM Best reflects the expectation that Clear Blue’s mitigative actions will continue to address potential negative impacts. However, changes in this outlook could lead to negative rating actions, AM Best noted.
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