Safepoint under AM Best ratings review, a potential cat bond candidate

Safepoint under AM Best ratings review, a potential cat bond candidate

Florida headquartered and seaside property focused U.S. primary insurer Safepoint has had its ratings positioned under evaluation with negative implications by AM Best, who pointed out take advantage of related pressures from the holding company.AM Best stated that both the Financial Strength Rating of B- (Fair) and the Long-Term Issuer Credit Rating of “bb-” (Fair) of Safepoint Insurance Company have actually been put under review with unfavorable implications.
Further explaining that the success of a near-term capital management plan for its holding business, Safepoint Holdings, Inc, which should reduce a few of the pressures is essential, or the insurance provider could discover itself downgraded.
Safepoints surplus is down this year and were informed that the carrier has actually faced some difficulties at its mid-year reinsurance renewal as an outcome.
In truth, the carrier is amongst those pointed out by market sources as potentially considering the issuance of an additional disaster bond, or the purchase of some extra reinsurance, as part of its strategies to restore surplus and lower financial pressures.
As weve been explaining in our writing just recently, sources inform us that a variety of Florida based insurance companies stay under severe monetary pressure, mainly due to lowered surplus and insufficient funding.
Some are stated to have actually failed to secure as much reinsurance as desired, or required, at the June 1st renewal, as they dealt with especially onerous terms, and were told this could result in additional purchases, and even some higher-layer disaster bonds being released in the coming weeks, as they attempt to make up surplus.
With the cat bond market viewed as particularly attractive for sponsors today, due to raised investor need, adding top-layer feline bonds to reinsurance towers that have actually failed is seen as a viable choice for carriers under surplus pressure, our sources said.
Safepoint is one of the companies that have actually come up in relation to these conversations, although we should highlight we can not be certain of its strategies to treat the monetary situation and whether more reinsurance or possible feline bonds become part of it.
AM Best described that, with Safepoint, “Unfavorable pressure from the holding company, as it relates to the insurers total balance sheet strength, has actually increased due to equity disintegration and outstanding debt, which exceeds AM Bests limit for what is considered a neutral level of financial take advantage of.”
The rating firm went on to say that the proposed capital management strategy is “anticipated to minimize the abovementioned pressure.”
Added that, “Should these plans not emerge within the expected timeline, unfavorable score action may follow.” Stating that, “The scores will stay under review till management performs this strategy and completes and AM Best examines the effect on the general company.”
Safepoint had $240 million of reinsurance limit from catastrophe bonds, offered by the $40 million Manatee Re III Pte. Ltd. (Series 2019-1) deal and its $200 million Manatee Re II Ltd. (Series 2018-1) cat bond.
The Manatee Re II 2018-1 cat bond is scheduled for maturity this month, lowering the providers capital markets backed reinsurance substantially.
As an outcome, a return trip to the feline bond market might be on the cards. Although we would typically have prepared for that happening in advance of the expiration of its in-force cat bond deal.
However if reports that Safepoint was among those dealing with a little bit more tough reinsurance renewal conditions are correct, we might well see thee provider returning given attractive cat bond pricing conditions.
Surprisingly, score company Demotech verified an A, Exceptional score for Safepoint Insurance Company back in December 2020, citing “remarkable monetary stability associated to maintaining positive surplus as relates to insurance policy holders, liquidity of invested properties, an acceptable level of monetary leverage, reasonable loss and loss adjustment expenditure reserves (L&LAE) and practical pricing.”
Nevertheless, Safepoints insurance policy holder surplus has actually decreased through the very first quarter of 2021, dropping approximately 7% from completion of the previous year.
That could be an indication of the pressure from the holding business financing, eroding surplus somewhat and possibly now resulting in a need for restorative actions to bring back the levels of take advantage of etc that AM Best deems proper for its score to be kept.

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