A.M. Best announced it has placed under review with negative implications the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” of Cooperativa de Seguros Multiples de Puerto Rico.
Concurrently, A.M. Best has changed the FSR to a Non-Rating Designation of E (Under Regulatory Supervision) from A- (Excellent) and the Long-Term ICR to “e” from “a-” of Real Legacy Assurance Company Inc., following the Puerto Rico Insurance Commissioner’s Office Sept. 28 decision to place Real Legacy under regulatory supervision.
CSM and its wholly owned subsidiary, Real Legacy, collectively are known as Cooperativa Seguros Group.
“The Credit Rating action for CSM follows the company’s recently filed second quarter statutory filings that reported a significant decline in policyholder surplus driven by adverse development on losses from Hurricane María of approximately $30 million,” A.M. Best noted in its analysis.
“As a result of these increased losses, claims from Hurricane María subsequently exceeded the company’s available reinsurance protection. In addition, losses at the subsidiary level also exceeded the available reinsurance protection, resulting in a sizeable realized capital loss,” the agency noted.
The size of the additional catastrophe losses relative to amounts previously disclosed to A.M. Best drives further uncertainty regarding the effectiveness of CSM’s enterprise risk management program, it added.
While the company has a number of initiatives under consideration to improve capital, the ultimate effectiveness of these initiatives are uncertain. Accordingly, the ratings will remain under review pending A.M. Best’s analysis of CSM’s capital plans.
Real Legacy was placed under regulatory supervision (Puerto Rico) largely driven by considerable development on Hurricanes Irma and María losses.
Hurricane Irma and María-related losses developed in the first half of 2018 by some $110 million, which exceeded the company’s reinsurance limits by some $70 million. Accordingly, as of June 30, 2018, the company’s policyholder surplus was negative $42 million.