Best Upgrades Greenlight Re’s Ratings to ‘A’; Outlook Stable

September 27, 2011

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A’ (Excellent) from ‘A-‘ (Excellent) and the issuer credit rating (ICR) to ‘a’ from ‘a-‘ of Cayman Islands-based Greenlight Reinsurance, Ltd., and has also affirmed the FSR of ‘A-‘ (Excellent) and ICR of ‘a-‘ of Greenlight Re’s sister company, Greenlight Reinsurance Ireland, Ltd.

In addition Best has upgraded the ICR to ‘bbb’ from ‘bbb-‘ of Greenlight Re’s holding company, Greenlight Capital Re, Ltd., which, the rating agency said, “is strictly based on the holding company’s methodology, since the company does not carry debt.”

The outlook for all of the ratings is stable.

The ratings for Greenlight Re are based on its “excellent risk-adjusted capitalization, experienced management team and the disciplined implementation of its business plan,” Best explained. The ratings also recognize “the company’s exceptional enterprise risk management as it aggressively manages risks on both sides of the balance sheet.”

As partial offsetting factors Best cited “the challenges Greenlight Re encounters with writing profitable business in a softening market and the leverage resulting from an investment portfolio that is primarily composed of publicly-traded equity securities.”

Best’s report also noted that “Greenlight Re operates as a broker market reinsurer writing a combination of property/casualty and specialty reinsurance business. The company has been successful building its underwriting team infrastructure and adding new business using its partnership oriented approach to underwriting.

“This underwriting approach allows Greenlight Re to focus on a small number of large relationships, which enables pricing and structuring on a deal by deal basis. The company’s underwriting and investment assumptions are combined to develop a risk profile on both sides of the balance sheet, while catastrophe aggregate downside limits are in place and capped at the board level. To date, Greenlight Re’s underwriting results are favorable, and its large surplus base supports the current and expected growth in premium volumes.”

In addition Best pointed out that, “while Greenlight Re’s capital footprint entails 100 percent common equity with no use of debt, Best is somewhat concerned with the asset risk represented by its equity-based investment portfolio. Mitigating this concern is the absence of financial leverage, the partially hedged nature of the investment portfolio and the experience of the investment managers.”

However, Best added that the “risk of the investment portfolio was stressed in 2008 when Greenlight Re lost 17.8 percent in its investment portfolio, followed by a return of 32.1 percent in 2009. More than 80 percent of the company’s invested assets are in highly liquid investments and generally no position can be greater than 20 percent of invested assets.”

Best’s interactive rating process “involves assessing Greenlight Re’s risk correlations across the enterprise by subjecting its capitalization to concurrent adverse stress test events. The company’s robust risk-adjusted capitalization withstands substantial amounts of strain when subjected to these various stress scenarios.”

Source: A.M. Best

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