FFH sub writes no new business for 9 months

[omagh]

The rating agency reaction to an insurance company not writing business is peculiar.  I suppose the logic goes "if they can't find any business to write, they must be speculative grade".  There may still be some extremely soft pricing in some markets.  Glad to see Clearwater keep its wallet zipped if this is the case.

 

http://www.insurancejournal.com/news/national/2010/11/22/115079.htm

Standard & Poor's Ratings Services has placed its 'A-' counterparty credit and financial strength ratings on Clearwater Insurance Co. on CreditWatch with negative implications. Clearwater is a subsidiary of Odyssey America Reinsurance Corp. (A-/Stable/--), which is ultimately owned by Toronto-based Fairfax Financial Holdings Ltd. "We placed our ratings on Clearwater on CreditWatch with negative implications given that the company did not report any new premiums in the first nine months of 2010," explained credit analyst Michael Gross. "The CreditWatch placement also reflects our questions about the insurer's prospective strategic importance to Odyssey Re and Fairfax in the context of our group methodology rating criteria." S&P noted that Clearwater "generated positive statutory net income of $4.1 million in 2009 and reported surplus of $696 million at year-end 2009. Statutory net income remained positive in the first nine months of 2010 at $5.9 million, and surplus increased to $739 million. We expect to resolve the CreditWatch status over the next 90 days. It is possible that we could lower the ratings to speculative grade."

 

-O

[StubbleJumper]

So let's see if I've understood this correctly:

 

1) Statutory capital actually increased over the past year.

2) No new business was written.

3) One would presume that there would have been some paids over the past year.

4) Due to a combination of (2) and (3), one would presume that claims reserves should have decreased, and BV should be characterized by a greater level of certainty.

 

Therefore, Clearwater is riskier this year than last year and deserves negative implications?????

 

Ratings agencies do not get it.  QED

 

 

SJ

[twacowfca]

So let's see if I've understood this correctly:

 

1) Statutory capital actually increased over the past year.

2) No new business was written.

3) One would presume that there would have been some paids over the past year.

4) Due to a combination of (2) and (3), one would presume that claims reserves should have decreased, and BV should be characterized by a greater level of certainty.

 

Therefore, Clearwater is riskier this year than last year and deserves negative implications?????

 

Ratings agencies do not get it.  QED

 

 

SJ

 

Or maybe rating agencies look at it this way:

 

No new business, ergo. . .

 

They may see some tail risk even though they're profitable.

 

Maybe tail risk will be greater than the cost of their ongoing expenses less the cost of writing new business.

 

Could there be reserving issues or are they just being cautious about writing new business?

 

Could this company be put in runoff or might it be sold to a less creditworthy buyer?  (parsing S&P's words indicates this is probably their chief concern)

 

Let's find out more about what's going on.   ???

 

Is Clearwater related to Clearwater Florida?  Perhaps, they don't like the rates the state currently allows, and don't want to write new business until they get rate relief.  Florida's new governor may not be as unreasonable as Crist has been.

[StubbleJumper]

So let's see if I've understood this correctly:

 

1) Statutory capital actually increased over the past year.

2) No new business was written.

3) One would presume that there would have been some paids over the past year.

4) Due to a combination of (2) and (3), one would presume that claims reserves should have decreased, and BV should be characterized by a greater level of certainty.

 

Therefore, Clearwater is riskier this year than last year and deserves negative implications?????

 

Ratings agencies do not get it.  QED

 

 

SJ

 

Or maybe rating agencies look at it this way:

 

No new business, ergo. . .

 

They may see some tail risk even though they're profitable.

 

Maybe tail risk will be greater than the cost of their ongoing expenses less the cost of writing new business.

 

Could there be reserving issues or are they just being cautious about writing new business?

 

Could this company be put in runoff or might it be sold to a less creditworthy buyer?  (parsing S&P's words indicates this is probably their chief concern)

 

Let's find out more about what's going on.   ???

 

Is Clearwater related to Clearwater Florida?  Perhaps, they don't like the rates the state currently allows, and don't want to write new business until they get rate relief.  Florida's new governor may not be as unreasonable as Crist has been.

 

 

Doesn't matter whether it's put in run-off.  FFH has been categorical about it's subsidiaries' obligations.  They are Fairfax obligations, full-stop.

 

The risk of being sold to a less credit worthy buyer is also rather amusing.  Perhaps we ought to whack GenRe's credit rating for the same reason?  Or perhaps we ought to whack the ratings of Wells Fargo's subs as well?

 

IMO, the rating agencies are gun shy.  They embarrassed themselves during the 2000s through lack of diligence, and now they are embarrassing themselves again through excessive conservatism.

 

 

SJ