Best Affirms Greenlight Re’s ‘A-‘ Ratings

October 12, 2010

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Cayman Islands-based Greenlight Reinsurance, Ltd. ,both with stable outlooks.

The ratings of Greenlight Re are based on its “excellent risk-adjusted capitalization, experienced management team and the disciplined implementation of its business plan,” said best. The ratings also “recognize the company’s exceptional enterprise risk management program as it aggressively manages risks on both sides of the balance sheet.”

As offsetting factors, Best cited “the challenges associated with writing profitable business in a softening market, and the leverage resulting from an investment portfolio that is primarily composed of publicly-traded equity securities.”

Greenlight Re operates as a Cayman Islands-based reinsurer writing a combination of global property, casualty and specialty reinsurance business primarily through the broker market. It has been successful building its underwriting team and infrastructure and adding new business.

Best also noted that the company also “continues to follow stringent underwriting and risk management guidelines. Greenlight Re’s underwriting results to date are favorable, and its large surplus base supports the current and expected growth in premium volumes. Nevertheless, the ability of Greenlight Re to effectively develop its niche and build market acceptance can only be proven over time.”

Best added that, although Greenlight Re’s capital footprint ‘entails 100 percent common equity with no use of debt,” it is somewhat concerned with the “asset risk represented by its equity-based investment portfolio. Mitigating this concern is the absence of financial leverage, the partially hedged nature of the investment portfolio, the experience of the investment manager, the reasonable asset performance during a difficult equity market in 2008 and the low underwriting leverage contemplated in Greenlight Re’s business plan.”

Best explained that its rating approach involves “assessing Greenlight Re’s risk correlations across the enterprise by subjecting its capitalization to concurrent adverse events. The company’s robust risk-adjusted capitalization withstands substantial amounts of strain when subjected to these various stress scenarios.”

The rating agency also stated that it will continue to “closely monitor Greenlight Re’s underwriting and asset risks and its progress against the business plan used to assess the ratings.

Source: A.M. Best

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