Best Affirms RenaissanceRe; Top Layer Re Ratings; Outlooks Stable

June 13, 2013

RenRe and Affiliates

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of Renaissance Reinsurance Ltd. (RenRe) and Renaissance Reinsurance of Europe, based in Dublin, Ireland. Best also has affirmed the ICR of “a-” and all debt ratings of RenaissanceRe Holdings Ltd. (RenaissanceRe) and the FSR of ‘A’ (Excellent) and ICRs of “a” of RenaissanceRe Specialty Risks Ltd.

In addition Best has affirmed the FSR of ‘A’ (Excellent) and the ICR of “a+” of DaVinci Reinsurance Ltd., as well as the ICR of “bbb+” of DaVinci Re Holdings Ltd. Best has also assigned an FSR of’ ‘A (Excellent) and an ICR of “a” to RenaissanceRe Specialty U.S. Ltd. (RenRe Specialty US).

The outlook for all of the ratings is stable. All of the companies named above are domiciled in Bermuda, unless otherwise specified.

Best said the “rating actions reflect RenRe’s superior level of risk-based capitalization, the strength and depth of its management team and the ability of the company to deliver strong long-term profitability over the course of the insurance cycle.

“The company is widely recognized as a thought and practice leader in enterprise risk management (ERM). In that regard, RenRe maintains its superior market reputation as a leader in state-of-the-art property catastrophe modeling and risk optimization, which has attracted capital from outside investors to form several successful joint ventures including DaVinci and Top Layer Reinsurance Ltd.

“The ratings of DaVinci recognize its solid operating performance over the last several years and the maintenance of its strong risk-adjusted capitalization. DaVinci’s profile is enhanced due to its affiliation with RenRe.

“The ratings assigned to RenRe Specialty US acknowledge its strong risk-adjusted capitalization, sound business plans and strategic business positioning for writing specialty risks. The ratings are enhanced based on explicit support including substantial internal reinsurance agreements. In addition, RenRe Specialty US’ profile is enhanced due to its affiliation and branding as a RenRe company, and it is expected that it will be risk-managed in a similar fashion.”

As an offsetting factor, Best noted that “as an organization, RenRe is exposed to high severity losses associated with catastrophic events on a worldwide basis. However, losses have historically been within stated risk tolerances and Best’s expectations.”

In conclusion Best said: “Factors that could lead to a revision of the outlook to positive or an upgrading of the companies’ ratings include continued, long-term favorable operating profitability relative to peers and maintenance of strong risk-adjusted capital levels.

“Factors that could cause a revision of the outlook to negative or a downgrading of the ratings include unfavorable operating profitability trends, outsized catastrophe or investment losses relative to peers and/or Best’s expectation that may result in an alternate view of ERM, a decline in the level of parental or organizational commitment, significant adverse loss reserve development and/or a material decline in risk-adjusted capitalization.”

Best summarized the ratings and the companies affected as follows:

The following debt ratings have been affirmed:
RenaissanceRe Holdings Ltd.—
— “bbb” on $250 million 6.08 percent Series C perpetual preferred stock
— “bbb” on $300 million 6.6 percent Series D perpetual preferred stock
— “bbb” on $275 million 5.375 percent Series E perpetual preferred stock

RenaissanceRe North America Holdings Inc.—(guaranteed by RenaissanceRe Holdings Ltd.)
— “a-” on $250 million 5.75 percent senior unsecured notes, due 2020

The following indicative shelf debt ratings have been affirmed:
RenaissanceRe Holdings Ltd.—
— “a-” on senior unsecured
— “bbb+” on subordinated
— “bbb” on preferred stock

RenaissanceRe Capital Trust II—
— “bbb” on trust preferred securities

Ratings of Top Layer Reinsurance Ltd.

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of Bermuda-based Top Layer Reinsurance Ltd., both with stable outlooks. Best explained that the “ratings reflect the substantial amount of support Top Layer receives from its co-owners, State Farm Mutual Automobile Insurance Company (State Farm) (currently with an FSR of ‘A++’ [Superior] and an ICR of “aa+”) and Renaissance Reinsurance Ltd. (RenRe) (currently with an FSR of A+ [Superior] and an ICR of “aa-“).”

Best noted that, “since Top Layer’s inception in 1999, it has generated outstanding operating results, which are due to the property catastrophe underwriting expertise of RenRe, combined with very few catastrophes significant enough to impact the programs written in Top Layer’s core markets. Top Layer’s business scope is limited to the assumption of high excess layers of non-U.S. property catastrophe risks underwritten on a global basis. The company experienced its first and second loss years in its history in 2010 and 2011, and has performed in line with how it was designed.”

Best also explained that “Top Layer maintains a modest amount of on-balance sheet capital relative to the high excess layers of property catastrophe risks it assumes. The company’s capital profile is rather unique from a qualitative and quantitative perspective, but fundamentally, Top Layer offers clients credit security in the layers of a reinsurance program where credit security is paramount.

“Top Layer’s capitalization is enhanced through various contractual obligations, resulting in substantial capital support and reinsurance protection from State Farm and, to a much lesser degree, RenRe. The occurrence of losses will trigger capital calls for State Farm and RenRe to replenish Top Layer’s capital. Moreover, State Farm provides Top Layer with $3.9 billion excess of $100 million stop-loss reinsurance protection. This coverage is significantly larger than the aggregate exposures Top Layer undertakes in each of its geographic zones.”

Best also indicated that “Top Layer’s ratings are largely dependent upon the support it receives from State Farm and RenRe;” adding that it “monitors these companies on an ongoing basis and continues to assess how any developments may impact Top Layer’s ratings.”

In conclusion Best said: “Factors that could result in a positive outlook or an upgrading of Top Layer’s ratings are a continuation of its very long-term profitability and a continuation of support from its owners.

“Factors that could lead to a downgrading of the company’s or revision of its outlook to negative would be increased frequency of losses that would cause A.M. Best to question the strategy or risk management and if RenRe/State Farm reduce their commitment to Top Layer.”

Source: A.M. Best

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