S&P Assigns ‘BB’ Ratings to Harbor Point’s Bay Point Re

May 30, 2006

Standard & Poor’s Ratings Services has assigned its ‘BB’ counterparty credit rating to Bay Point Re Ltd. and its ‘BB’ senior secured debt rating to Bay Point’s term loan debt facility of up to $125 million with a stable outlook.

“Bay Point is a limited-life, special-purpose Class 3 reinsurance company domiciled in Bermuda and set up specifically to offer quota share reinsurance to Harbor Point Re Ltd. (Harbor Point; A-/Stable/-),” S&P noted.

“The senior debt rating reflects the modeled risk inherent in writing property catastrophe business and to a lesser extent Bay Point’s delegation of underwriting authority to Harbor Point,” explained S&P credit analyst James Brender. “These positive factors are balanced by Harbor Point’s strong competitive position and risk management, good alignment of interests between Bay Point and its cedant, the unique structure of sidecars, and a low modeled probability of attachment.”

S&P also indicated: “Leverage and coverage were not considered explicitly as ratings factors due to Bay Point Re’s use of a trust structure. However, these factors indirectly affect the modeled results for a given capital structure and premium base. Bay Point Re may borrow up to $125 million from a consortium of banks for five years. The entity’s capital structure will include an equal amount of equity.

“The proceeds from capital raising transactions will be placed in a collateral account, which will provide Harbor Point with a source of indemnity cover for losses relating to its property catastrophe lines of business and other related lines. The duration of Bay Point’s assets will be consistent with that of its obligations.

“Harbor Point will cede a portion of its premium from its property business to Bay Point through a quota share reinsurance treaty under which Bay Point’s liability will attach simultaneously with that of Harbor Point and otherwise follow the fortunes with respect to the business retroceded to Bay Point. The exact cession percentage will depend on Bay Point Re’s collateral and Harbor Point’s expected premium volume and probable maximum loss from a 1-in-100-year U.S. wind event and 1-in-250-year U.S. earthquake event. Initially, the quota share cession will be up to 50 percent.”

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