OLDWICK: Global rating agency, AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb” of Weston Insurance Company.
The outlook of these Credit Ratings is negative. Concurrently, AM Best has withdrawn these ratings as the company has requested to no longer participate in AM Best’s interactive rating process.
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’s balance sheet strength assessment of adequate is supported by its strong, albeit declining, level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), along with its conservative investment portfolio, which are offset by the company’s elevated underwriting leverage measures and a surplus position that has declined in consecutive years.
The ultimate parent, Weston Insurance Holdings Corporation, recently completed a number of transactions that reduced financial leverage pressure materially and led to a neutral assessment of the holding company as it relates to Weston’s overall balance sheet strength assessment. AM Best considers Weston’s operating performance to be marginal, marked by moderate volatility in underwriting results that rely on ceding commissions to produce returns.
AM Best views the company’s business profile as limited, based on its geographic and product concentration as a property writer predominately in Florida. AM Best considers Weston’s ERM practices to be appropriate for its risk profile.
The negative outlooks reflect pressure on Weston’s balance sheet strength given the unfavorable trends in its risk-adjusted capitalization and material surplus erosion in recent years. Additionally, the negative outlooks reflect concern 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.