PaCRe Ltd. must deal with a negative outlook from A.M. Best, which has also withdrawn its ratings of the fledging, Bermuda-based reinsurer.
The ratings statement does include some good news. A.M. Best affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit rating of “a-” of Bermuda-based PaCRe, Ltd., though it has removed the ratings from under review with negative implications and assigned a negative outlook. Best said it has “withdrawn the ratings in response to the company’s request to no longer participate in A.M. Best’s interactive rating process.”
The bulletin explained that the negative outlook reflects PaCRe’s business focus in what has become a competitive property catastrophe reinsurance market. It also stems from the overall performance of PaCRe’s alternative asset strategy relating to its original projected business plan, A.M. Best noted.
A.M. Best added that PaCRe hasn’t reached its projected premium volume due to the highly competitive market.
There is a bright side, the ratings entity noted.
PaCRe “has produced positive underwriting results since inception, despite a few significant loss events, which is a testament to the solid underwriting and strong cycle management capabilities of the underwriting manager,” A.M. Best said.
As far as PaCRe’s alternative asset strategy, A.M. Best asserted that it hasn’t performed as expected during the reinsurer’s operating history, and produced “unrealized investment losses.” The bulletin pointed out that while management has shifted course on the investment strategy to reduce volatility, it will take time for those changes to take hold and create some longer-term benefit.
Best’s report also explained that PaCRe’s ratings are “based on its excellent risk-adjusted capitalization, … experienced underwriting team; and independent management by AlphaCat Managers Ltd. ( a business unit within Validus Holdings, Ltd.). The ratings assessment is also based on PaCRe’s broader business plan of writing upper layer property catastrophe business, combined with assets managed by Paulson & Company Inc.
Best cited the “the start-up nature of PaCRe along with the greater investment risk that is associated with this type of investment strategy,” as partially offsetting these positive rating factors.
Best predicted that PaCRe’s business plan will face challenges from “established reinsurers, as well as other alternative investment reinsurers entering the market, and more property catastrophe capacity into an already overcapitalized reinsurance marketplace could pressure underwriting margins.”
Source: A.M. Best