A.M. Best Downgrades Credit Ratings Of Greenlight Reinsurance, Ltd. And Its Affiliate

A.M. Best has downgraded the Financial Strength Rating to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to "a-" from "a" of Greenlight Reinsurance, Ltd. (Greenlight Re) (Cayman Islands) and its affiliate, Greenlight Reinsurance Ireland, Designated Activity Company (Ireland). Additionally, A.M. Best has downgraded the Long-Term ICR to "bbb-" from "bbb" of Greenlight Re's holding company, Greenlight Capital Re, Ltd. (Cayman Islands) [NASDAQ:GLRE]. The outlook of these Credit Ratings (ratings) has been revised to stable from negative.

The rating actions reflect Greenlight Re's less favorable underwriting results in recent years, including results through June 30, 2016, which have fallen short of A.M. Best's long-term expectations. While the company has taken actions to remediate the problematic contracts, it is showing an underwriting loss that underperforms most peers on its five-year trend through 2015. While A.M. Best acknowledges that the underwriting process and controls have since been strengthened, the current market environment will continue to present challenges and will ultimately test the sufficiency of the current underwriting rigor and enterprise risk management. Investment losses in 2015 did not help the company's overall earnings profile, however, A.M. Best anticipated a certain level of volatility with regard to the investment portfolio.

At the current rating level, A.M. Best can be slightly more accepting of variability in operating results, though, A.M. Best is looking for operating results, that over the long term, generate solid profit from both underwriting and investment activities. Greenlight Re faces increasing challenges in writing profitable business in a market with excess capacity and further competition from new reinsurance companies with a similar alternative investment strategy.

While Greenlight Re's capital footprint entails 100% common equity with no use of debt, A.M. Best recognizes the asset risk represented by its equity-based investment portfolio. Mitigating this concern is the inherent partially hedged nature of the investment portfolio, and the experience and strong, long-term track record of the investment manager. 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.

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