Watford Re Readies for Business; Best Assigns Ratings, Stable Outlook

March 27, 2014

Bermuda-based Watford Holdings Ltd. and its wholly-owned subsidiary Watford Re Ltd. (collectively, “Watford” or the “Company”), a newly-formed Bermuda-based multi-line reinsurer, announced have announced that “it has raised capital and expects to commence reinsurance operations shortly.

Watford is led by CEO John Rathgeber, a 30-year reinsurance industry veteran, who was most recently the Vice Chairman of Arch Worldwide Reinsurance Group. Watford Re is licensed as a Class 4 reinsurer by the Bermuda Monetary Authority.

In recognition A.M. Best Co. said it has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” to Watford Re, both with stable outlooks.

Best said the “ratings are based on Watford’s strong risk-adjusted capitalization, experienced underwriting led by Arch Underwriters Ltd., a wholly owned subsidiary of Arch Capital Group Ltd., and Watford’s broad-based business plan.”

As partial offsetting factors Best noted the “start-up nature of the company and the risks associated with a leveraged investment strategy along with competitive conditions in the reinsurance market that may challenge the execution of the business plan.”

Best explained that it “believes that underwriting risk coupled with the leveraged investment strategy creates an elevated risk profile that could expose Watford on both the asset and liability sides of the balance sheet.” However, Best added, ‘the skilled underwriting of Arch Capital Group Ltd. and the experienced investment acumen of Highbridge Principal Strategies, LLC (HPS), along with cash flows produced by Watford’s credit investment strategy, will help manages these risks.”

Best also indicated that it “anticipates that Watford’s management will be challenged by competition from established reinsurers as well as other start-up entities and alternative capital. The addition of more capacity to an already overcapitalized reinsurance marketplace could pressure underwriting margins.

“Watford’s assets will be managed by HPS, a subsidiary of Highbridge Capital Management, LLC, a New York-based SEC-registered investment advisor. HPS has approximately $19 billion of assets under management. Watford will own the individual investments and hold the assets on its balance sheet. Watford’s assets will not be comingled with any HPS-managed funds with other investors of HPS.”

In conclusion Best said: “Key rating triggers that could result in positive rating actions would be Watford meeting and/or exceeding its business plan. Negative rating actions could occur if Watford fails to execute its business plan over the long term.”

Sources: Watford Holdings/Watford Re and A.M. Best

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