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A.M. Best Co. downgraded the financial strength rating of Clarendon Insurance Group to “A-” (excellent) from “A” (excellent), and its property/casualty affiliates. The outlook is stable.

Clarendon’s downgrade reflects the recent downgrade of its parent Hannover Re based in Germany to “A” (excellent) from “A+” (superior) and the elevated credit risk maintained by Clarendon due to its above-average reinsurance recoverables. Best is concerned with the general decline in credit quality of the reinsurance sector, to which Clarendon is significantly exposed based on its business profile as a program writer that cedes a significant portion of its direct writings to its reinsurance partners. Clarendon continues to benefit from its relationship with Hannover, but not to the extent supportive of the “A” (excellent) rating. The stable rating outlook reflects Clarendon’s established presence as a leading program writer, its strong operating results, steady surplus generation and management’s efforts to reduce the group’s credit risk in the near term.