A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of “a” of Greenlight Reinsurance, Ltd. (Greenlight Re). A.M. Best also has affirmed the FSR of A- (Excellent) and ICR of “a-” of Greenlight Re’s affiliate, Greenlight Reinsurance Ireland Limited (Ireland). Concurrently, A.M. Best has affirmed the ICR of “bbb” of Greenlight Re’s holding company, Greenlight Capital Re, Ltd. (Greenlight Capital Re) [NASDAQ: GLRE]. The ICR of Greenlight Capital Re is strictly based on the holding company’s methodology since the company does not carry debt. The outlook for all ratings is stable. All companies are domiciled in the Cayman Islands, unless otherwise specified. The ratings of Greenlight Re are based on its excellent risk-adjusted capitalization, experienced management team and the disciplined implementation of its overall business strategy. The ratings also recognize the company’s exceptional enterprise risk management as it aggressively manages risks on both sides of the balance sheet. These strengths are partially offset by the challenges Greenlight Re faces writing profitable business in a market with increased capacity and further competition from new reinsurance companies with a similar alternative investment strategy. Also detracting from the company’s strengths is the leverage resulting from an investment portfolio that is primarily composed of publicly traded equity securities. However, this concern has been diminished as Greenlight Re’s investment portfolio has performed well over time. Greenlight Re operates as a Cayman Islands-based broker market reinsurer writing a combination of property, casualty and specialty reinsurance business. It has been successful in building its underwriting team’s infrastructure and adding new business using a partnership-oriented approach to underwriting. This underwriting approach allows Greenlight Re to focus on a small number of large relationships, which enables pricing and structuring on a deal-by-deal basis. Underwriting and investment assumptions are combined to develop a risk profile on both sides of the balance sheet. Catastrophe aggregate downside limits are in place and capped at the board level. Greenlight Re’s underwriting results to date are favorable, and its large surplus base supports the current and expected growth in premium volume. The underwriting acumen of the team performed well as the company took very minimal catastrophe losses in 2011, which proved to be a high cat event year.
While Greenlight Re’s capital footprint entails 100% common equity with no use of debt, A.M. Best 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 and the experience of the investment manager. The risk of the investment portfolio was stressed in 2008 when it lost 17.8%, followed by a return of 32.1% in 2009. More than 80% of the invested assets are in highly liquid investments and generally no position can be greater than 20% of invested assets. A.M. Best’s rating approach involves assessing Greenlight Re’s risk correlations across the enterprise by subjecting its capitalization to concurrent adverse stress test events. The company’s robust risk-adjusted capitalization withstands substantial amounts of strain when subjected to these various stress scenarios.Positive rating actions may result from continued improvements in Greenlight Re’s operating results, lower adverse development, continued lack of cat losses and a continued positive investment performance. Negative rating actions may result from continued abnormal adverse development, severe negative investment results, significant loss of surplus and/or poor underwriting performance. A.M. Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated in the United States and throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative insurance market, please visit www.ambest.com/captive. The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Understanding Universal BCAR”; “Catastrophe Analysis in A.M. Best Ratings”; ”A.M. Best’s Perspective on Operating Leverage”; “Alternative Risk Transfer (ART)”; and “Rating Members of Insurance Groups.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.