KBRA Affirms the Ratings of Clear Blue Financial Holdings, LLC and Subsidiaries

KBRA affirms the BBB- Issuer Rating for Clear Blue Financial Holdings, LLC, the BBB- long-term credit rating (LTCR) for the $65 million 5.375% senior unsecured notes due 2028, the A- IFSRs for Clear Blue Specialty Insurance Company (CBSIC), Clear Blue Insurance Company, Rock Ridge Insurance Company, and Highlander Specialty Insurance Company, and the BBB LTCR for the $45 million 8.75% surplus notes due 2045 issued by CBSIC. The Outlook for all ratings is Stable.

The ratings reflect Clear Blue’s experienced management team, sound operating company capitalization, high quality and liquid investment portfolio, an efficient corporate structure with service companies that generate significant unregulated cash flows that can provide capital to support growth and cover debt service, and a prominent market position. Clear Blue’s ERM program is adequate for its risk profile and continues to mature. As of YE2025, consolidated GAAP financial leverage was elevated at 43%, up from 33% at YE2024. Similarly, EBIT coverage and cash coverage of interest expense declined to low single digits in recent years as Vesttoo-related losses pressured earnings. Financial leverage and interest coverage are expected to improve in the near-term.

Balancing credit strengths is Clear Blue’s business model that relies heavily on reinsurance, which gives rise to counterparty credit risk and to the need to continuously renew appropriately structured treaties at an efficient cost. As Clear Blue’s underwriting leverage increased over the years, the need for increased diversification of reinsurers became more important. Further, while underwriting leverage was increasing, changes in the market environment led the company to use an increasing amount of reinsurance with unrated counterparties, a factor that led to an enhanced framework for reinsurance credit risk management, including the development of a dedicated credit risk department. After pressuring earnings during 2024, the Vesttoo matter pressured earnings during 2025. After declining from $28.2 million in 2023 to $11.3 million in 2024, CBHF’s GAAP net income declined to $4.5 million in 2025. On a combined insurance group statutory basis, net income declined from $17.1 million in 2023 to $13.1 million in 2024 to a loss of ($18.8) million in 2025. Credit risk and the risk of adverse development remain. Underwriting leverage increased over time, but gross leverage eased off its peak in 2024, returning to target in 2025. Key person risk has been partially mitigated by the company’s focus in recent years on succession planning and building management depth to support its long-term growth.

Factors that could positively impact the ratings include sustained growth in earnings and capital, prudent management of underwriting leverage and reinsurer and bank counterparty credit risks, significant diversification of premium, reinsurance counterparties and reinsurance recoverables, or enhancement of well-defined market position.

Factors that could negatively impact the ratings include material adverse change in risk profile, significant decline in earnings or balance sheet strength, unplanned departure of key members of the management team without suitable replacement, rapid material increases in underwriting leverage, inability to maintain an effective reinsurance program and/or an inability to collect from reinsurers, lack of progress, or deterioration, in diversifying program/premium/reinsurer/recoverable concentrations, discontinuation of the pooling arrangement, or continuing material adverse loss development and legal costs related to the Vesttoo matter.

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