A.M. Best has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of Bermuda-based PaCRe, Ltd., and has removed the ratings from under review with negative implications and assigned a negative outlook. Best said it has “withdrawn the ratings in response to the company’s request to no longer participate in A.M. Best’s interactive rating process.”
The bulletin explained that the “negative outlook reflects PaCRe’s focused business profile in what has become a competitive property catastrophe reinsurance market and the overall performance of its alternative asset strategy relative to its original projected business plan.
“The company has not achieved its projected premium volume, due to the current competitive market environment in property catastrophe reinsurance. However, it has produced positive underwriting results since inception, despite a few significant loss events, which is a testament to the solid underwriting and strong cycle management capabilities of the underwriting manager.
“Additionally, the alternative asset strategy has not performed as expected during PaCRe’s operating history producing unrealized investment losses. Although management has made changes to the investment strategy in an effort to reduce the volatility, it will take time for these changes to inure to the benefit of PaCRe.”
Best’s report also explained that PaCRe’s ratings are “based on its excellent risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR); its experienced underwriting team; and independent management by AlphaCat Managers Ltd., a business unit within Validus Holdings, Ltd. Additionally, PaCRe’s ratings are based on the overall business plan of writing upper layer property catastrophe business combined with assets managed by the investment expertise of Paulson & Company Inc.”
Best cited the “the start-up nature of PaCRe along with the greater investment risk that is associated with this type of investment strategy,” as partially offsetting these positive rating factors.
Best also indicated that “PaCRe’s business plan will be challenged by established reinsurers, as well as other alternative investment reinsurers entering the market, and more property catastrophe capacity into an already overcapitalized reinsurance marketplace could pressure underwriting margins.”
Source: A.M. Best
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