Enstar's StarStone placed under review with negative view by AM Best

AM Best has placed the financial strength ratings (FSR) of StarStone Insurance Bermuda and its subsidiaries under review with negative implications.

The rating actions follow the announcement by its parent Enstar Group that its majority stake in StarStone Specialty Insurance Company (SSIC) and StarStone National Insurance Company (SNIC) will be diluted to a minority interest through capital provided by new investors. Concurrently, StarStone Insurance SE (SISE) and StarStone Insurance Bermuda Limited (SIBL) will be placed into runoff.

Enstar Group has agreed a deal to recapitalise specialist insurer StarStone US with more than $610 million in new equity capital from SkyKnight Capital, Dragoneer Investment Group and Aquiline Capital Partners.

The under review with negative implications status of SSIC and SNIC reflects the agency's expectation that the rating enhancement provided to these two companies through Enstar’s majority ownership will be removed on completion of the transaction.

"While Enstar is maintaining a significant ownership in SSIC and SNIC, it is no longer sufficient to provide explicit rating enhancement, but will be contemplated in the companies’ other building block assessments" said AM Best.

AM Best is evaluating the impact of the planned transaction and change in strategic direction of SNIC and SSIC, and their strategic importance within the wider Enstar group.

Additionally, the agency noted "uncertainty" surrounding SIBL and SISE's risk-adjusted capitalisation following the restructuring of the group. "There may be negative pressure on the business profiles of these companies, given the runoff nature of the remaining business," it said.