Meadowbrook Insurance Group, currently under review by rating agency A.M. Best Co., says it has reached a quota-share agreement with Swiss Re to address capital concerns.
The Southfield, Mich.-based specialty program manager says it will surrender 50 percent of unearned premium on a selected portion of its business in return for an undisclosed ceding commission, starting Dec. 31.
Additionally, Meadowbrook says it will cede 25 percent of direct written premiums on this selected, unidentified portion of business, effective Jan. 1, 2013.
Meadowbrook says both transfers will be about $90-$100 million.
In a statement, CEO Robert S Cubbin says,” We are moving as expeditiously as possible to solve the existing uncertainty,” and its agreement with Swiss Re as well as other actions the company has taken “will help alleviate the doubt relating to our rating and establish a capital position that currently and prospectively supports our business strategy.”
In October A.M. Best placed Meadowbrook's “A-minus” financial strength rating under review with negative implications and added there is a “reasonable likelihood that the ratings (the financial strength and issuer credit ratings) will be downgraded” based on Meadowbrook's admission of more losses for prior years 2011, 2010 and 2009, as well as “earnings prospects going forward.”
The announcement that A.M. Best had narrowed its eyes toward Meadowbrook followed the insurer's broadcast that it needed to add more than $31 million to its reserves to handle higher-than-expected loss activity from accident years 2009, 2010 and 2011.
The expense was recorded in third-quarter results, when Meadowbrook reported a net income loss of $26.6 million.
Meadowbrook says its exposure to Superstorm Sandy is primarily limited to marine and properties in the Northeast. It expects about an after-tax impact from the storm of between $3.5 million and $4.5 million.
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