AM Best has placed under review with negative implications the credit ratings of StarStone Insurance Bermuda and its subsidiaries as a result of the recent announcement by parent company, Enstar Group Ltd., that it was boosting the capital of StarStone with a new equity capital investment of $610 million.
The rating action covers the Financial Strength Ratings (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” of StarStone Insurance Bermuda Ltd. and its rated subsidiaries: StarStone Insurance SE (in Liechenstein); StarStone Specialty Insurance Co. (an excess and surplus lines insurer domiciled in Wilmington, Del.), and StarStone National Insurance Co. (an admitted carrier also domiciled in Wilmington).
AM Best said the rating actions follow the announcement on June 10, 2020 by Enstar that its majority stake in StarStone Specialty Insurance Co. (SSIC) and StarStone National Insurance Co. (SNIC) will be diluted to a minority interest through capital provided by new investors. Concurrently, StarStone Insurance SE and StarStone Insurance Bermuda Ltd., will be placed into runoff.
In the announcement, Enstar said the equity capital raise was pursued in order to pursue growth in a hardening market.
The under review with negative implications status of SSIC and SNIC reflects AM Best’s expectation that the rating enhancement provided to these two companies through Enstar’s majority ownership will be removed on completion of the transaction.
While Enstar is maintaining a significant ownership in the two companies, it is no longer sufficient to provide explicit rating enhancement, but will be contemplated in the companies’ other building block assessments, said AM Best. If the transaction is not successfully completed, AM Best said it will need to re-evaluate the current level of rating enhancement provided to SNIC and SSIC and their strategic importance within the wider Enstar group.
Further, while AM Best expects Enstar to support the runoff of StarStone Insurance SE and StarStone Insurance Bermuda, there is uncertainty surrounding their risk-adjusted capitalization following the restructuring of the group.
In addition, there may be negative pressure on the business profiles of these companies, given the runoff nature of the remaining business.
Source: AM Best
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