AM Best Affirms Credit Ratings of Nectaris Re Ltd.
May 10 2024 - 11:42AM
Business Wire
AM Best has affirmed the Financial Strength Rating of A
(Excellent) and the Long-Term Issuer Credit Rating of “a”
(Excellent) of Nectaris Re Ltd. (Nectaris Re), the operating
subsidiary of Nectaris Holdings Ltd. (both domiciled in Bermuda).
The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Nectaris Re’s balance sheet strength, which
AM Best assesses as strongest, as well as its adequate operating
performance, limited business profile and appropriate enterprise
risk management (ERM).
Nectaris Re’s business strategy is to retrocede all of its
business to Horseshoe Re II Limited segregated accounts company
(Horseshoe Re II), with cells that are funded by insurance-linked
securities funds managed by Leadenhall Capital Partners LLP
(Leadenhall). Leadenhall is a subsidiary of Mitsui Sumitomo
Insurance Company, Limited (a subsidiary of MS&AD Insurance
Group Holdings, Inc. [MS&AD]). Leadenhall, which has a Mutual
Cooperation Agreement with Nectaris Re, has had a book of business
built since its inception in 2008.
Nectaris Re’s business, originated via both Lloyd’s Syndicate
2001 (MS Amlin Underwriting Limited) and MS Reinsurance (MS Amlin
AG), both whose ultimate parent is MS&AD, accounts for most of
the total limits ceded to Nectaris Re and is 100% retroceded to
Horseshoe Re II on a fully collateralized basis. Lloyd’s Syndicate
2001 and MS Reinsurance-ceded business is collateralized at the
1-in-1,000 aggregate exceedance probability (AEP) return period and
those entities retain the tail risk above the 1-in-1,000 AEP level.
Nectaris Re also sources substantial business via its open market
operations. Historically, all open market business retroceded to
Horseshoe Re II was collateralized at the 1-in-2,000 AEP return
period, with the associated tail risk retained by Nectaris Re.
Beginning in 2024, the Horseshoe Re II retrocession for the open
market business will be collateralized at a lower level than in
prior years, but not less than the 1-in-250 AEP level, with
Nectaris Re retaining the tail risk above that level. Collateral
provided by Horseshoe Re II, which is composed of cash and highly
rated short-term assets, is held in trust accounts for the benefit
of Nectaris Re.
AM Best projects Nectaris Re’s risk-adjusted capitalization, as
measured by Best’s Capital Adequacy Ratio (BCAR), to remain at the
strongest level over the near term (i.e., one to three years). The
company’s liquidity and quality of assets provide ample support for
its balance sheet strength assessment. Partially offsetting these
rating factors is Nectaris Re’s relatively high dependency on
third-party retrocession. However, all retrocession ceded limits
will be written on a collateralized basis, thus minimizing Nectaris
Re’s counterparty risk. Despite the reduction to the Horseshoe Re
II collateralization level noted above, the ratio of the tail risk
retained by Nectaris Re to its equity is still expected to be
low.
AM Best assesses Nectaris Re’s overall operating performance as
adequate based upon solid gross and net underwriting results in
2022 and 2023, along with the historical operating results of the
reinsurance portfolio of the Leadenhall-managed funds from which
the Nectaris Re portfolio was formed, and the projected performance
results of the retained tail risk. Although, the company’s strategy
is to focus on underwriting profits and not on investment returns,
it has benefited from the higher interest rate environment by
earning additional investment income. Ceding commission also makes
up a substantial portion of Nectaris Re’s net income.
AM Best assesses Nectaris Re’s business profile as limited, as
the company predominantly writes property catastrophe reinsurance
contracts. Product concentration is mitigated somewhat by risk
diversification across regions, perils, and the number of cedants.
The company’s pricing sophistication and modeling capabilities,
including vendor models and independent modeling tools, enable
management to execute its pricing strategy.
Due to Nectaris Re’s Mutual Cooperation Agreement with
Leadenhall, AM Best assesses the company’s ERM capabilities as
appropriate for its risk profile.
This press release relates to Credit Ratings that have been
published on AM Best’s website. For all rating information relating
to the release and pertinent disclosures, including details of the
office responsible for issuing each of the individual ratings
referenced in this release, please see AM Best’s Recent Rating
Activity web page. For additional information regarding the use and
limitations of Credit Rating opinions, please view Guide to Best's
Credit Ratings. For information on the proper use of Best’s Credit
Ratings, Best’s Performance Assessments, Best’s Preliminary Credit
Assessments and AM Best press releases, please view Guide to Proper
Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and
data analytics provider specializing in the insurance industry.
Headquartered in the United States, the company does business in
over 100 countries with regional offices in London, Amsterdam,
Dubai, Hong Kong, Singapore and Mexico City. For more information,
visit www.ambest.com.
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