A.M. Best Affirms Goshawk Re ‘A-‘ Rating

July 2, 2003

A.M. Best Co. announced that it has affirmed the financial strength rating of A- (Excellent) of Bermuda-based Goshawk Reinsurance Limited with a stable outlook.

“The rating affirmation reflects the company’s excellent capitalisation, excellent operating performance and improving business profile,” said Best. “Offsetting factors include the delay in developing a diversified core book of specialist business, in addition to potential reserve deterioration on a quota share book that includes an element of U.S. liability insurance.”

Best said that according to its risk-adjusted capital model, “Adjusted shareholders’ funds (as calculated by A.M. Best) have increased through the retention of earnings to USD 176.6 million as at December 31, 2002, from USD 140 million the previous year. Additionally, short-term funds of USD 65 million have been provided through debt issued by the holding company, Goshawk Insurance Holdings plc.” It added that “Debt leverage is well within A.M. Best’s expectations for an A- (Excellent) rating and is expected to decrease going forward.”

It also noted that Goshawk Re, which London-based insurer Goshawk Holdings established after the Sept. 11 attacks, had produced a 23.2 percent return on equity in its first full year of operation, and called the result an “excellent operating performance.” Best indicated that “prospective operating performance remains excellent, with an average ROE of over 15% expected in the near term.” It added that this is “subject to normal loss experience, particularly with respect to a large quota share contract of a book of assumed property and casualty reinsurance written by a U.S. medical insurer. Although the contract has been subject to extensive actuarial analysis, and a loading of 14.3% over and above the rates originally charged has been negotiated, A.M. Best will closely monitor the run-off of this business.”

Best noted that “In addition to reinsurance transferred from Lloyd’s Syndicate 102–currently rated A (Excellent)–and quota share reinsurance of selected syndicate business (less than 20% of premium income in 2002), the company is developing a diversified book of marine, property and other specialist reinsurance business in 2003 from other sources.” It also said it recognized that “the late employment of specific class underwriters during 2002 restricted the implementation of the original business plan. However, Goshawk Re has exceeded gross premium income projections in 2002 (USD 203 million actual versus USD 160 million budget), largely due to the U.S. quota share contract. This contract will contribute approximately 25% of premium in 2003.”

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