Best Lowers Clarendon Insurance Group ratings to ‘A-‘

November 5, 2003

A.M. Best Co. announced that it has downgraded the financial strength rating to ‘A-‘ (Excellent) from ‘A’ (Excellent) of Clarendon Insurance Group of Wilmington, Del. and its P/C affiliates. The outlook for the rating is stable.

“The downgrade of Clarendon reflects the recent downgrade of its parent, Hannover Rueckversicherungs AG (Hannover Re) (Germany) to A (Excellent) from A+ (Superior) and the elevated credit risk maintained by Clarendon due to its above-average reinsurance recoverables,” said Best.

The rating agency also expressed its concern with “the general decline in credit quality of the reinsurance sector, to which Clarendon is significantly exposed based on its business profile as a program writer that cedes a significant portion of its direct writings to its reinsurance partners. A.M. Best considers the protection afforded Clarendon by its parent with regard to the collection of reinsurance recoverables to be reduced, based on the elevated underwriting leverage at Hannover Re.” It added, however, that Clarendon nevertheless “continues to benefit from its relationship with Hannover Re, but not to the extent supportive of the A (Excellent) rating.”

Best said “The stable rating outlook reflects Clarendon’s established presence as a leading program writer, its strong operating results, steady surplus generation and management’s efforts to reduce the group’s credit risk in the near term. However, Clarendon will remain challenged as it strives to lower its credit risk without adversely affecting risk-adjusted capitalization through increased retention levels.”

It noted that “Clarendon operates as a program writer throughout the United States on both an admitted and surplus lines basis. Business is marketed through approximately 50 select managing general agents (MGAs) and general agents. The group operates through five insurers that provide commercial lines and personal lines coverages on an admitted basis, as well as through one surplus lines company. ”

The ratings downgrade also applies to the following subsidiaries:
— Clarendon America Insurance Company
— Clarendon National Insurance Company
— Clarendon Select Insurance Company
— Harbor Specialty Insurance Company
— Redland Insurance Company

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