Best’s News & Research Service - October 18, 2016 03:14 PM (EDT)
A.M. Best Assigns Credit Ratings to Watford Insurance Company; Affirms Credit Ratings of Watford Re Ltd. and Its Subsidiaries
- October 18, 2016 03:14 PM (EDT)
Oldwick //BestWire// - A.M. Best has assigned a Financial Strength Rating (FSR) of A- (Excellent) and a Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” to Watford Insurance Company (WIC) (Morristown, NJ). The outlook assigned to these Credit Ratings (ratings) is stable. Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” of Watford Re Ltd. (Watford) (Bermuda) and Watford’s subsidiaries, Watford Insurance Company Europe Limited (WICE) (Gibraltar) and Watford Specialty Insurance Company (WSIC) (Morristown, NJ). In addition, A.M. Best has affirmed the Long-Term ICR of “bbb-” and the Long-Term Issue Credit Ratings of “bb” on the $225 million 8.5% cumulative preference shares of Watford Holdings Ltd. (Bermuda). The outlook of these ratings is stable.
The ratings of Watford have been extended to WICE and WSIC based on their strategic role to Watford and the explicit and implicit support provided by Watford. WIC’s assigned ratings also recognize its strategic role to Watford and the explicit and implicit support provided by Watford.
Watford’s ratings are based on its strong risk-adjusted capitalization; experienced underwriting led by Arch Underwriters Ltd. and Arch Underwriters Inc., wholly owned subsidiaries of Arch Capital Group Ltd.; leading investment acumen of HPS Investment Partners, LLC (HPS); and Watford’s broad-based business plan. Partially offsetting these positive rating factors are the inherent risks associated with a start-up company and the risks associated with a leveraged alternative investment strategy. In addition, the competitive market conditions in the reinsurance sector may challenge the execution of the business plan.
Watford’s underwriting risk coupled with the leveraged alternative investment strategy creates an elevated risk profile that could expose Watford on the asset and liability sides of the balance sheet. However, the skilled underwriting of Arch Capital Group Ltd. and the experienced investment acumen of HPS, along with cash flows produced by Watford’s credit investment strategy, will help partially mitigate these risks. Additionally, A.M. Best has stress-tested risk-adjusted capitalization for simultaneous adverse underwriting and investment events and Watford appears to be adequately capitalized under those conditions.
Watford’s assets are managed by HPS, a New York-based, SEC-registered investment adviser. Watford’s assets are not commingled with any other HPS-managed fund.
Key rating factors that could result in positive rating actions would be Watford meeting or exceeding its business plan over the long term, which includes consistently strong operating results while maintaining strong risk-adjusted capitalization. Negative rating actions could occur if Watford’s operating performance is weak or inconsistent, if the company experiences large underwriting or investing losses or if risk-adjusted capitalization becomes strained.
This press release relates to Credit Ratings that have been published on A.M. 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 A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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