Best said its rating action reflects its opinion that "Clearwater is not an integral operating entity of Odyssey Reinsurance Group and that its stand-alone business position, operating performance and capitalization do not afford it the ratings of the Group. Clearwater has significant liability leverage with approximately 45 percent of its carried loss reserves as of year-end 2007 constituting asbestos and environmental liabilities (A&E).
Best also noted that when it last affirmed Clearwater's rating, it had "contemplated that OARC would be providing significant reinsurance protection on these reserves. This protection has not been forthcoming. Clearwater has incurred adverse development relating to A&E reserves of $77.4 and $68.2 million in years 2007 and 2006, respectively."
Best explained that it is "concerned that these liabilities could potentially run off adversely. While this may be an issue with Clearwater, A.M. Best does not consider these exposures to be significant to Odyssey Reinsurance Group when taken as a whole. Additionally, the company contributes nominal earnings to the group and has limited premium volume."