Clear Blue Insurance outlook upgraded to stable: A.M. Best

A.M. Best Co. said Tuesday it has revised the outlook for fronting insurer Clear Blue Insurance Group from negative to stable, citing its balance sheet strength.

Best affirmed the financial strength ratings of A- (excellent) of Clear Blue’s four operating insurers – Clear Blue Insurance Co., Clear Blue Specialty Insurance Co., Highlander Specialty Insurance Co. and Rock Ridge Insurance Co. 

In the past few months Clear Blue has replaced reinsurance capacity and raised $25 million in capital, Best said.

Best placed Clear Blue’s ratings under review with negative implications July 25 due to uncertainty around its ability to rely on certain letters of credit issued in transactions involving online reinsurance intermediary Vesttoo Ltd. following allegations they were issued fraudulently.

Clear Blue has successfully moved active programs to either new reinsurers or reinsurers on its existing panels took higher percentages, the ratings agency said. All of these contracts have been signed and are fully collateralized, Best said.

All run-off programs that remain in place are collateralized by funds held in case from written premium, but additional collateral on these programs above the funds held has not been replaced, Best said.

Best said it continues to assess the company’s balance sheet strength as very strong given Clear Blue’s recent infusion of $25 million in capital, replacement of capacity on active programs and relatively modest financial losses.

From an enterprise risk management perspective, “it has become evident through documents associated with Vesttoo’s bankruptcy filing that fraud was at the heart of this episode,” Best said.

Clear Blue has implemented more rigorous procedures around securing, documenting and confirming letters of credit, which are believed to be appropriate, Best said.

The performance of retained run-off programs remains uncertain and could potentially impact Clear Blue financially and operationally, Best said.