A.M. Best Downgrades Credit Ratings of DuraRock Reinsurance, Ltd.

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best has downgraded the Financial Strength Rating (FSR) to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “a-” from “a” of DuraRock Reinsurance, Ltd. (DuraRock) (St. Michael, Barbados). The outlook of these Credit Ratings (ratings) has been revised to stable from negative.

Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” of Cherokee Insurance Company (Cherokee) (Port Huron, MI), an affiliated company. The outlook of these ratings is stable.

The ratings of DuraRock reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The downgrade of DuraRock’s ratings is based on A.M. Best’s evaluation of the company’s quality and concentration of assets and its increased dependence on one single investment, which has appreciated in value in recent years. This large single investment also accounts for the majority of its capital and capital growth in recent years. As a result, much of the company’s investment earnings are tied to this investment. While having ready access to business sourced by Cherokee, DuraRock’s business remains somewhat narrowly focused, although it is viewed to be strategic and complementary to Cherokee and the needs of their clients. DuraRock also benefits from its low underwriting leverage, good operating results and its appropriate risk management philosophy. The ratings could be downgraded if there were a material drop in the company’s capitalization or operating results. DuraRock’s heightened investment leverage also could produce negative rating pressure.

Currently, all of DuraRock’s business is derived from Cherokee. The ratings of Cherokee reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. Factors that may lead to negative rating action for Cherokee include a material decline in operating results; capitalization levels that fall below A.M. Best’s expectations for the current rating level; or investment portfolio pressures that also could negatively impact the ratings or outlooks.

This press release relates to Credit Ratings that have been published on A.M. 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 A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

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A.M. Best

Michael T. Venezia, +1-908-439-2200, ext. 5034

Senior Financial Analyst

michael.venezia@ambest.com

or

Robert Raber, +1-908-439-2200, ext. 5696

Associate Director

robert.raber@ambest.com

or

Christopher Sharkey, +1-908-439-2200, ext. 5159

Manager, Public Relations

christopher.sharkey@ambest.com

or

Jim Peavy, +1-908-439-2200, ext. 5644

Director, Public Relations

james.peavy@ambest.com

Source: A.M. Best