S&P Affirms Bermuda Insurers Ratings after ‘Hybrid Securities’ Review

Standard & Poor’s Ratings Services announced that it has “affirmed its ‘BBB+’ preferred stock rating on PartnerRe Ltd.; its ‘BBB’ preferred stock ratings on ACE Ltd. and RenaissanceRe Holdings Ltd.; and its ‘BBB-‘ preferred stock ratings on Arch Capital Group Ltd., Aspen Insurance Holdings Ltd., AXIS Capital Holdings Ltd., and Endurance Specialty Holdings Ltd.”

The rating action follows a previously announced review of certain preference stock and other hybrid equity issues of the Bermuda-based insurers and reinsurers (See IJ web site June 8). “The review focused on evaluating the potential impact of credit facility financial covenants contained in separate banking agreements on the companies’ ability to pay dividends on these preferred instruments,” explained S&P credit analyst Jacob Schlanger.

Referring specifically to ACE, Arch Capital, Aspen, AXIS, Endurance and Partner Re, S&P said the “rating affirmations are based on the expectation that the contract clauses referring to the restriction of dividend payments will be removed and/or amended within the respective credit agreements, such that the financial covenants do not pose a greater risk of forced deferral of hybrid dividend payments than previously assumed.”

S&P’s affirmation of RenRe’s rating is based on its analysis that “given RNR’s present financial structure and the present covenants in its banking agreements, these covenants would only force deferral when RNR is already likely to be deferring on a discretionary basis and thus does not materially increase the likelihood of deferral.”