AM Best Affirms Credit Ratings of Benchmark Insurance Group Members and Trean Insurance Group, Inc.

Rhea-AI Summary

AM Best has affirmed the Financial Strength Rating of A (Excellent) and Long-Term Issuer Credit Rating of 'a' (Excellent) for Benchmark Insurance Group and its subsidiaries. Concurrently, it has affirmed Trean Insurance Group's Long-Term ICR of 'bbb' (Good), with a stable outlook. The group's balance sheet strength is assessed as very strong, with a diversified portfolio but significant reinsurance dependence. After unusual underwriting losses in 2021, the group rebounded with $12.6 million in operating income in H1 2022 and an improved 89.5% combined ratio. Overall, Trean's financial metrics remain solid.

Positive

• Affirmed Financial Strength Rating of A (Excellent) for Benchmark Insurance Group.
• Stable outlook for Trean Insurance Group's Long-Term ICR of 'bbb' (Good).
• Rebounded with $12.6 million in operating income for H1 2022.
• Improved combined ratio from 91.4% in H1 2021 to 89.5% in H1 2022.

Negative

• Declining operating results in 2021 due to unusual underwriting losses.
• Significant dependence on reinsurance presents counterparty credit risk.

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a” (Excellent) of Benchmark Insurance Company (headquartered in Wayzata, MN), Benchmark Specialty Insurance Company (Little Rock, AR), American Liberty Insurance Company (Provo, UT) and 7710 Insurance Company (Summerton, SC). These companies are collectively referred to as Benchmark Insurance Group (BIG). Concurrently, AM Best has affirmed the Long-Term ICR of “bbb” (Good) of Trean Insurance Group, Inc. (Delaware) (Trean Insurance) [NASDAQ: TIG], the ultimate parent of BIG. The outlook of these Credit Ratings (ratings) is stable.

The ratings of BIG reflect its balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).

BIG’s balance sheet strength assessment reflects a highly rated, diversified fixed-income portfolio and consistent loss reserve discipline offset by elevated net underwriting leverage and a sound, albeit declining, liquidity position. The group has significant reinsurance dependence that subjects it to material counterparty credit risk. However, to mitigate this credit risk, BIG holds approximately 80% in collateral on a funds-held basis or requires collateral in a trust or as a letter of credit from reinsurers not authorized in the insurance carrier’s state of domicile to secure recoverable balances. The group has diversified this credit risk related to ceded reinsurance and has no disputes for reinsurance recoverables deemed uncollectible.

The group reported declining operating results in 2021 as a result of several unusual underwriting losses. However, BIG’s operating performance assessment reflects its strong overall underwriting profitability and net investment income that has produced double-digit pre-tax operating results and returns on equity, which compare favorably with AM Best’s workers’ compensation composite’s five-year averages at Dec 31, 2021. In the first half of 2022, the group reported $12.6 million of operating income as a result of a rebound in underwriting profitability, as reflected in its 89.5% combined ratio, which improved from 91.4% in the first half of 2021.

AM Best views the group’s business profile as limited, as it reflects a concentration of business in the workers’ compensation line of business. To reduce its product concentration, BIG has added programs in accident & health, commercial auto, general liability and the homeowners lines of business, as well as fronting relationships for several captive insurers. Additionally, Trean Insurance and Beat Capital Partners Americas (Beat) announced a strategic partnership in July of 2022 via Trean’s recently formed subsidiary, Benchmark Specialty Insurance Company, to offer non-admitted excess & surplus products through newly established Beat-backed agencies.

Although BIG continues to maintain significant dependence on reinsurance, it now retains an increased percentage of risk from its more profitable programs. Given management’s extensive experience in providing a market for small workers’ compensation program carriers, BIG continues to reduce its overall credit risk to a manageable level with risk management capabilities in line with its business profile.

AM Best views BIG’s ERM structure as appropriate, as the group’s program includes risk appetite and tolerance statements that focus on concerns specific to its business profile. The group’s ERM framework benefits from an experienced board of directors and executive management teams at TIG and BIG, which are cognizant of the key elements in maintaining and enhancing a competitive advantage in their program niche.

At June 30, 2022 and Dec. 31, 2021, Trean Insurance reported total assets of $1.51 billion and $1.50 billion; total liabilities of $1.10 billion and $1.08 billion; and stockholders’ equity of $410.1 million and $421.9 million, respectively. The company’s total liabilities include outstanding debt from a five-year credit facility, at variable rates of interest, due May 26, 2025, of $29.6 million and $30.4 million, respectively. Adjusted and unadjusted debt leverage to tangible capital remained at 14.6% over both time periods. Trean Insurance’s interest coverage was 26.8 times at June 30, 2022, compared with 15.7 at Dec. 31, 2021. In August 2022, BIG issued a $50 million 20-year unaffiliated surplus note which, if included in the June 30, 2022 balances, produced adjusted and unadjusted debt leverage to tangible capital of 16.8% and 36.2% with interest coverage at 9.8 times.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Kevin Dorsey

Senior Financial Analyst

+1 908 439 2200, ext. 5401

kevin.dorsey@ambest.com

Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

Joseph Burtone

Director

+1 908 439 2200, ext. 5525

joseph.burtone@ambest.com

Al Slavin

Communications Specialist

+1 908 439 2200, ext. 5098

al.slavin@ambest.com

Source: AM Best

FAQ

What is the current Financial Strength Rating of Trean Insurance Group (TIG)?

The current Financial Strength Rating of Trean Insurance Group is A (Excellent) as affirmed by AM Best.

What was Trean Insurance's operating income in the first half of 2022?

Trean Insurance reported an operating income of $12.6 million in the first half of 2022.

What is the combined ratio for Trean Insurance in H1 2022?

The combined ratio for Trean Insurance in the first half of 2022 is 89.5%, improved from 91.4% in H1 2021.

How does AM Best assess the balance sheet strength of Benchmark Insurance Group?

AM Best assesses the balance sheet strength of Benchmark Insurance Group as very strong, reflecting a diversified fixed-income portfolio.

What does AM Best say about Trean Insurance Group's risk management?

AM Best views Trean Insurance Group's enterprise risk management structure as appropriate, focusing on specific concerns of its business profile.