On Tuesday, A.M. Best Co. announced that the rating agency has placed the financial strength rating of “A-minus” (excellent) and issuer credit rating of “a-minus” of S.A.C. Re, Ltd. (SAC Re) under review with negative implications.

The rating actions reflect A.M. Best’s concern with the business plan originally presented by SAC Re, which took into account invested assets being managed by S.A.C. Capital, Best said, noting that current circumstances surrounding the investment manager mean that the original business plan may be challenged.

Last week, federal prosecutors filed an insider trading case against S.A.C. Capital and the Securities and Exchange Commission filed a civil complaint a week earlier.

“Presently, there is uncertainty as to whether the invested assets can be managed by S.A.C. Capital, as well as whether there will be ramifications concerning any affiliation with S.A.C. Capital on the reinsurance franchise going forward,” A.M. Best said, referring to “reputational risk” resulting from the fact that the reinsurer and the investment manager share the same name

SAC Re is not a “subsidiary” or a “unit” of S.A.C. Capital, and S.A.C. Capital only serves as the investment manager, the rating agency noted.

Best said that in spite of recent events, the risk-adjusted capitalization of SAC Re still supports the current “A-minus” rating level.

Best said it expects to resolve the “under review” status once it sees an updated business plan, which it expects to include an updated investment management plan “that may or may not include S.A.C. Capital as an investment manager.”

The rating agency stressed that retention of key management will also be an important factor in resolving the under review status.

“Rating downgrades could occur if SAC Re cannot separate itself from reputational risk, the business plan is not executed over the long term or key management is not retained,” Best concluded.

Source: A.M. Best