OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has assigned a Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” to Trean Insurance Group, Inc. (Delaware) [NASDAQ:TIG]. The outlook assigned to this Credit Rating (rating) is stable. Concurrently, AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICRs of “a” of Benchmark Insurance Company (BIC) (headquartered in Wayzatia, MN) and American Liberty Insurance Company (ALIC) (Provo, UT), subsidiaries of Trean Insurance Group, Inc., the ultimate parent. The outlook of these ratings is stable. BIC and ALIC are members of Benchmark Insurance Group (BIG). These rating actions follow an initial public offering (IPO) for Trean Insurance Group Inc. (Trean) on July 21, 2020.
Prior to the IPO, Trean was renamed from the combined entities Trean Holdings, LLC and BIC Holdings, LLC, and re-domesticated to Delaware from Kansas and Minnesota, respectively. Subsequently, Trean became the ultimate parent, as BIC Holdings LLC, the former ultimate parent, was eliminated. Approximately $95 million of capital was raised net of expenses. The proceeds from the capital raise will be used to repay outstanding debt, general corporate purposes and to fund future growth. Trean’s financial leverage measures, as a percent of unadjusted and adjusted total debt to tangible capital, are 22.4% and 19.4%, respectively, with interest coverage of approximately 17x earnings before interest and taxes. All measures are within AM Best’s guidelines for the ratings.
The ratings of BIG reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
BIG’s balance sheet assessment reflects moderate net underwriting leverage, a sound liquidity position, a highly rated, diversified fixed income portfolio and consistently favorable loss reserve development. However, the group has significant reinsurance dependence that subjects it to material counterparty credit risk. To mitigate this credit risk, BIG holds collateral on a funds held basis, or requires collateral in a trust or as a letter of credit, to secure recoverable balances from reinsurers not authorized in the insurance carrier’s state of domicile. The group has diversified this credit risk related to ceded reinsurance and has no disputes for reinsurance recoverables deemed uncollectible.
The strong operating performance assessment reflects the group’s consistent underwriting profitability and rising net investment income that has produced double-digit returns on revenue and equity, which compares favorably to the five-year average workers’ compensation composite’s measures.
AM Best views the group’s business profile as limited, as it reflects a concentration of business in the workers’ compensation line of business and geographic concentration in California, where approximately 52% of its business is generated. As noted above, BIG also maintains significant dependence on reinsurance. However, given management’s extensive experience in providing a market for small workers’ compensation program carriers, it has reduced 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. Risk management benefits from and experienced management team cognizant of the key elements in their chosen niche.
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