A.M. Best Removes from Under Review and Affirms Ratings of Clearwater Insurance Company; Assigns Negative Outlook.

OLDWICK, N.J. -- A.M. Best Co. has removed from under review and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of Clearwater Insurance Company (Clearwater) (Wilmington, DE). The outlook assigned to the ratings is negative.

The ratings had been placed under review with negative implications pending A.M. Best's view of implicit and explicit support provided by Clearwater's parent company, Odyssey America Reinsurance Corporation (OARC) (Stamford, CT), which is a member of Odyssey Reinsurance Group. Clearwater now receives explicit support from OARC in the form of prospective quota share reinsurance and a guarantee from OARC on all third-party reinsurance recoverables.

The revised outlook reflects A.M. Best concerns about the future business strategy of Clearwater and its concerns regarding the potential for adverse loss reserve development impacting the company's risk-adjusted capitalization.

The ratings reflect Clearwater's weak operating performance, modest business position and exposure to asbestos and environmental liabilities (A&E). Clearwater has significant liability leverage, with 47% of its carried net loss reserves as of year end constituting A&E claims. Somewhat offsetting these concerns are the company's current adequate capitalization and its ownership by OARC, which maintains strong capitalization, financial flexibility and modest financial leverage at the ultimate holding company, Odyssey Re Holdings Corp. (Delaware) [NYSE: ORH].

The ratings of the members of Odyssey Re Group, including OARC, Hudson Insurance Company (HIC), Hudson Specialty Insurance Company (HSC) and Newline Insurance Company Limited are unchanged as a result of this outlook revision. Although HIC and HSC are direct subsidiaries of Clearwater, they too receive explicit support from OARC in the form of prospective quota share reinsurance and a guarantee from OARC on all third-party reinsurance recoverables.

For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.