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HAMILTON, BermudaThe financial strength ratings of The Steamship Mutual Underwriting Association (Bermuda) Ltd. and London-based The Steamship Mutual Underwriting Association Ltd. have been downgraded by A.M. Best Co. to B++ from A-.
The rating action against the Bermuda protection and indemnity club reflects "potential volatility" in its "risk-adjusted capitalization, the continuing challenge the club faces in underwriting profitability and its reliance on investment income," Oldwick, N.J.-based Best said in a statement.
There is a "substantial risk" that the club's capital will deteriorate until February 2009, because it is "dependent on investment to achieve a surplus" and is likely to be affected by "increased exposure to reserving risk following higher than anticipated underwriting losses for the 2006-07 financial year..."
The London insurer was downgraded because of its reliance on the Bermuda club to provide annual reinsurance coverage on 90% of the first $30 million of net liabilities in any policy year and 100% of liabilities above $30 million.
The Bermuda mutual said in a statement that its downgrade "appears to be an overreaction to the unusually high level of claims," the club has received since July and its projected underwriting deficit for the 2006-07 policy year. Despite the high claims count, the club is projectingsubject to final auditan overall surplus and increase in free reserves to $158.9 million for the financial year ended Feb. 20.
The club is disappointed that Best chose to "reduce the club's rating in this precipitate way," the statement said. Its "robust financial condition" justifies the "continuation of an A- rating," the club said.