Best Rates Paris Re Sidecar

December 29, 2006

A.M. Best Co. has assigned debt ratings of “bbb-” to the $24 million senior secured term A loans and “bb+” to the $40 million senior secured term B, both due December 2009, of Triomphe Re. The issuer is a newly created Bermuda exempted, limited life special purpose Class 3 reinsurer (or sidecar), which Best has assigned an issuer credit rating of “bbb.” The outlook on all three ratings is stable.

“The primary business purpose for the creation of the issuer, in addition to the issuance of the term loans, is providing quota share reinsurance to Paris Re and affiliates of Paris Re Holdings Limited (collectively known as cedant) and entering into other related agreements necessary for the performance of activities to service the issuer’s ongoing obligations,” Best explained.

Paris Re Holdings is a newly-created Bermuda company, formed by a consortium of international investors led by Trident III, L.P., a fund managed by Stone Point Capital LLC to acquire the ongoing business of France’s AXA Re (See IJ Website Dec 26, April 6,10).

Best noted that “under the reinsurance agreement, the issuer provides the cedant with an initial 24 percent quota share reinsurance for its non-proportional property catastrophe and risk excess of loss reinsurance business, subject to specified occurrence and annual aggregate limits over a two-year period beginning January 1, 2007.

“The cedant is required to retain at least 50 percent of the subject reinsurance business and is entitled to a profit commission based upon the financial performance of the issuer, which creates an incentive for the cedant to produce and retain quality business.

“Proceeds from the issuance of the term loans together with equity contributions are deposited into a collateral trust account and are available to pay amounts owed by the issuer. This includes loss payments required to be made under the quota share reinsurance agreement, expenses and fees of the administrative agent, payments (interest costs) in respect of the term loans, operating expenses of the issuer, permitted dividend payments and payments upon wind down of the term loans.”

Best also indicated that the “assigned ratings represent an opinion as to the issuer’s ability to meet its financial obligations to security holders when due. The assigned ratings take into consideration a multitude of factors including the modeled probability of attachment (i.e. the first dollar of loss) as determined by A.M. Best using both a stochastic and a deterministic modeling approach; stress testing of the deal model and the effect on its cash flows based upon A.M. Best’s view on key variables including loss ratios, interest rates and collateral adequacy levels; a review of the subject ceded business and applicable covered perils, occurrence limits and annual aggregate limit exposure; and a review of the structure and the legal documentation surrounding the structure.”

Source A.M. Best

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