Platinum Formally Operational, A.M. Best Assigns ‘A’ (Excellent) Rating

November 5, 2002

A.M. Best Co. announced that it has assigned an initial financial strength rating of ‘A ‘(Excellent) to the reinsurance subsidiaries of Bermuda-based Platinum Underwriters Holdings Ltd., the company formed by the St. Paul to spin-off its reinsurance operations, which went public last week, and has formally commenced operations.

Best also said it had assigned an initial rating of “bbb+” to the equity security units included with this initial public offering. It indicated that “Future obligations by the investors to acquire Platinum’s common stock under these equity security units are secured by senior notes issued by Platinum Underwriters Finance, Inc. and are guaranteed by Platinum.”

“The outlook for these ratings is stable,” said the bulletin.
Best noted that Platinum was formed following the St. Paul’s “strategic decision to separate its insurance and reinsurance businesses following substantial losses incurred from the September 11 events.” It will operate as an independent, publicly traded, company, and will take over the ongoing reinsurance operations of St. Paul.

In a separate announcement the St. Paul said that it has contributed $123 million of cash to Platinum and transferred approximately $350 million in assets relating to transferred insurance reserves.

In exchange, St. Paul said it has acquired six million common shares, representing a 14 percent ownership interest in Platinum, and a ten-year option to buy up to six million additional common shares at an exercise price of $27 per share, which represents 120 percent of the initial public offering price. RenaissanceRe acquired a 9.9% ownership stake in Platinum through a private placement in September.

Platinum assumed substantially all of St. Paul’s existing reinsurance business as of January 1, 2002, and all subsequent contracts effective after that date, but St. Paul will retain responsibility for all liabilities related to business underwritten prior to 2002, including any developments stemming from the September 11 attacks.

“These initial ratings reflect Platinum’s existing books of business and established distribution relationships. These ratings also acknowledge Platinum’s strong capitalization and the benefits it derives from its association with St. Paul. Platinum is retaining key senior management personnel from St. Paul’s reinsurance operations and an existing infrastructure including back office operations, thereby providing for continuity of operations,” said Best’s announcement.

“Platinum is led by Steven H. Newman, chairman, who has over 40 years of insurance industry experience, which includes serving as chairman, chief executive officer and president of Underwriters Re until its acquisition by Swiss Re in May 2000,” it continued.

Best indicated that “offsetting factors” included increased competition “from both established and newly created companies that have recently entered the reinsurance marketplace,” and “execution risk as Platinum attempts to successfully transition business from St. Paul and maintain its desired portfolio of business.”

The rating agency said it would continue to “closely monitor Platinum’s operations to ensure targeted results are achieved and operational and financial leverage ratios are well within A.M. Best’s expectations for the ratings assigned.”

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