Best Affirms Wind River Re/Global Indemnity and Subs Ratings

June 16, 2014

A.M. Best has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit ratings (ICR) of “a” of Bermuda-based Wind River Reinsurance Company, Ltd. and its U.S. subsidiaries, as well as the ICR of “bbb” of Wind River Re’s ultimate parent holding company, Global Indemnity plc, which is based in Dublin, Ireland.

Best has also affirmed the indicative ratings on the shelf registration of “bbb” on senior unsecured debt, “bbb-” on subordinated unsecured debt and “bb+” on the preferred stock of Global Indemnity.

The outlook for all ratings is stable.

The ratings for Wind River Re “reflect its strong capitalization and financial flexibility; improving underwriting results and its dedication to risk management to better contain catastrophe losses,” Best explained.

“The company’s strong capital position is reflective of its limited premium base and conservative balance sheet, as well as the support and financial flexibility provided by Global Indemnity. The ratings also recognize the historical profitability of Wind River Re’s U.S. subsidiaries, which operate under one intercompany reinsurance pooling agreement.”

Best’s report noted that the U.S. insurance subsidiaries “cede 50 percent of its net retained liabilities to Wind River Re. In 2011, new management deliberately cancelled several unprofitable reinsurance treaties. Wind River Re has repositioned itself in the underwriting of conventional treaty reinsurance, primarily catastrophe-oriented placements and focused on reducing its catastrophe related retentions and reinsurance in the U.S. insurance operations.

As offsetting factors Best cited “the organization’s potential exposure to future weather-related events, high underwriting expenses and increasing risk in its investment portfolio. It is unclear as to whether new risk mitigation strategies are adequate to withstand various levels of catastrophes.”

However, Best also pointed out that “management has implemented an enterprise-wide emphasis on premium adequacy and underwriting profitability as well as exiting certain unprofitable classes of business. Expenses seem well-controlled but create the higher than average expense ratio when combined with lower premiums. The company’s equity leverage is growing relatively quickly due to capital appreciation in the recently strong equity markets; however, there are no exposure concentrations.”

In conclusion Best said: “Positive rating actions on Wind River Re in the near term are unlikely due to recent volatility in underwriting results. Factors that may lead to positive ratings actions in the medium term include a sustained improvement in operating performance and the company’s ability to meet and/or beat projections.

“Factors that may lead to negative rating actions include weakening in Wind River Re’s operating results, a decline in its risk-adjusted capitalization and/or a decline in reserve adequacy.”

Best summarized the companies affected by its rating actions as follows:
The FSR of A (Excellent) and ICRs of “a” have been affirmed for Wind River Reinsurance Company, Ltd. and its following subsidiaries:
– Diamond State Insurance Company
– Penn-America Insurance Company
– Penn-Patriot Insurance Company
– Penn-Star Insurance Company
– United National Insurance Company
– United National Specialty Insurance Company

Source: A.M. Best

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