Ratings: Hamilton Re, ACR Re, Bahamas First, China Taiping (NZ), Peak Re, Solid

December 24, 2013

A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-“ of Bermuda-based Hamilton Re, Ltd, formerly S.A.C. Re, Ltd., and has assigned a stable outlook to both ratings. Best said Hamilton Re’s ratings are “based on its excellent risk-adjusted capitalization, knowledgeable management team and prudent business plan.” As partial offsetting factors Best cited “the start-up nature of the company, the greater investment risk associated with an alternative investment strategy, as well as the increased competition in the reinsurance marketplace that may challenge some of the company’s business plans.” Best also said it is “concerned there is a possibility that Hamilton could be exposed to a convergence of events due to the adjoining of underwriting risk and the present risk in an alternative investment strategy. Also of concern is the relatively high gross investment leverage used by Two Sigma Investments (TSI), which is higher than other alternative investment strategies. These risks could have an adverse effect on the company’s risk-adjusted capital.” However, Best indicated: “These risks are mitigated by Hamilton’s low underwriting leverage and experienced underwriting team. The investment leverage concerns are mitigated by the partially hedged nature of the portfolio, the large number of diversified liquid investments, and the investment manager’s lengthy investment track record. The assets of Hamilton will be managed by TSI, a global firm based in New York, NY, which was founded in July of 2001 by John Overdeck and David Siegel. Hamilton’s assets will be invested in a dedicated ‘fund of one,’ which allocates capital to two different trading entities. These entities apply various strategies to invest in liquid investments in the global equity, futures, FX and derivatives markets.” In addition Best said it “anticipates that Hamilton’s management will be challenged by competition from established reinsurers as well as other start-up entities. The addition of more capacity to an already overcapitalized reinsurance marketplace could pressure underwriting margins. Key rating triggers that could result in positive rating actions would be steady growth of surplus through investments and underwriting, and meeting and/or exceeding the business plan over the long term. Key rating triggers that could result in negative rating actions would be not executing the business plan over the long term, and/or having large losses that would reduce risk adjusted capital.”

A.M. Best Asia-Pacific Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit ratings of “a-” of Malaysia’s ACR ReTakaful Berhad and ACR ReTakaful MEA B.S.C. (c), which is based in Bahrain. Best also has affirmed the ICR of “bbb-” of ACR ReTakaful Holdings Limited, based in the United Arab Emirates. The outlook for all ratings is stable. Best said the “ratings reflect ACR ReTakaful and ACR ReTakaful MEA’s adequate capitalization and enhanced enterprise risk management.” Best also acknowledged “the companies’ disciplined and prudent investment strategies.” The report noted that “during the early part of 2012, ACR ReTakaful and ACR ReTakaful MEA’s capitalization was weakened, largely due to unfavorable underwriting performance as a result of the catastrophe losses that occurred in the Asia-Pacific region in 2011. Nonetheless, the companies took measures to restore capital strength through reducing the net retention of underwriting risks and reducing catastrophe exposures. ACR ReTakaful and ACR ReTakaful MEA’s risk-adjusted capitalization is expected to be adequate in the near to mid-term and is supportive of their current ratings.” As offsetting factors Best cited “the companies’ volatile historical underwriting results and the competitive reinsurance market in the Asia-Pacific region. Best indicated, however, that “in view of the volatile historical underwriting results, the companies have enhanced their underwriting risk management through stricter risk selection and more rigorous portfolio management. Nonetheless, competition from existing reinsurers and new entrants into the Asia-Pacific reinsurance market remain challenging.” Best said it would “continue to closely monitor the effectiveness of the companies’ risk management measures and the financial performance of their operations against their stated business plans. Future positive rating actions could occur if the companies further improve their risk-based capitalization and demonstrate the ability to achieve a consistently favorable operating performance. Conversely, negative rating actions could occur if the companies’ operating performances materially deviate from their projections, or their risk-adjusted capitalization levels decline below Best’s expectations.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit ratings of “a-” of Bahamas First General Insurance Company Limited (BFG) and Cayman First Insurance Company Limited (CFIC), both with stable outlooks. Both companies are subsidiaries of Bahamas First Holdings Limited (BFH). Best said BFG’s ratings “reflect its continued excellent capitalization, historically favorable operating performance and leading market share in the Bahamian market. These factors are supported by BFG’s, local market expertise, conservative catastrophe program and solid risk management programs.” However, Best indicated that these positive rating factors “are offset by BFG’s dependence on reinsurance, geographic concentration and catastrophe exposure, particularly to hurricanes in the Caribbean. Additionally, there is increased competition within the Bahamian insurance market and lingering economic and fiscal concerns about the Bahamas’ overall economic outlook.” Best said the “ratings of CFIC recognize its improved capitalization and positive non-health operating results along with its expertise in the Cayman market. CFIC’s ratings also reflect improvements in the company’s health business and the winding down of litigation from prior ownership, which continues to have a negative impact on the company’s earnings and capital position.” Best indicated “while the outlook for BFG’s ratings is stable, positive rating actions could occur if the company exhibits sustainable long-term improvements in operating performance coupled with improvements in the Bahamas’ macroeconomic environment. Negative rating triggers could include protracted adverse operating results that are exacerbated by a large catastrophic event or a significant decline in risk-based capitalization. Negative rating triggers for CFIC would include deterioration in its operating results, in particular from its accident and health business, or a decline in equity resulting in increased leverage metrics. Positive rating triggers would include continued improved profitability and organic surplus appreciation.”

A.M. Best Asia-Pacific Limited has affirmed the financial strength rating of ‘B+’ (Good) and the issuer credit rating of “bbb-” of New Zealand’s China Taiping Insurance (NZ) Co., Limited (CTPNZ), both with stable outlooks. Best then withdrew the ratings as the company has requested to no longer participate in its interactive rating process. “The ratings acknowledge CTPNZ’s adequate reinsurance buffer for the 2010-11 earthquakes and the financial flexibility the company receives from its affiliation with China Taiping Insurance Group (HK) Company Limited,” Best said. As partial offsetting factors Best cited “CTPNZ’s declining capital trend and regulatory solvency margin, high dependence on reinsurance and claims escalation that may potentially delay the settlement process.”

A.M. Best Asia-Pacific Limited has affirmed the financial strength rating of ‘A-’ (Excellent) and issuer credit rating of “a-” of Hong Kong-based Peak Reinsurance Company Limited, both with stable outlooks. Peak Re’s ratings “are based on its sound risk-adjusted capitalization, focused underwriting strategy entering the January renewal period, senior management’s long-standing Asia Pacific market knowledge and its strong investment performance achieved through a highly liquid investment portfolio during its first year of operation,” Best explained. As partial offsetting factors Best cited “the many challenges Peak Re faces in executing its business plan amid the increasingly competitive reinsurance environment within many Asia-Pacific markets. This includes the potential exposure to multiple large risk events that may adversely impact its capital position during its early years of operation.” Best added that “although Peak Re is well positioned at its current rating level, negative rating actions may occur if failure to execute its business plan causes the company’s risk-adjusted capitalization to decline to a level below Best’s expectations.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘B++’ (Good) and the issuer credit rating of “bbb+” of Sweden’s Solid Forsakringsaktiebolag, both with stable outlooks. Best then withdrew the ratings in response to management’s request to no longer participate in its interactive rating process. Best said the “ratings reflect Solid’s robust risk-adjusted capitalization and niche business profile as an extended warranty insurer. These factors are partially offset by the company’s decreasing technical profit, which was precipitated by lower earned premiums, as well as high claims activity and large acquisition costs associated with its newer lines of business, namely personal motor and property insurance.”

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