Ratings Recap: Alliance Re, Emerson Re/GIC Re, Sagicor, New Castle Re

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A-‘ (Excellent) from ‘B++’ (Good) and the issuer credit rating (ICR) to “a-“from “bbb+” of Cyprus-based Alliance International Reinsurance Public Company Limited (Alliance Re). The outlook for the FSR is stable, and the outlook for the ICR has been revised to stable from negative. “The rating action reflects the implicit and explicit support that is provided to Alliance Re by its new parent company, Flagstone Reinsurance Holdings Ltd.,” Best explained. “Flagstone Re is providing Alliance Re with explicit support through both a parental guarantee and significant quota share protection.” Best indicated that it also expects “Alliance Re to benefit from implicit support in the form of systems and resources that will be made available by its new parent following the completion of its integration.”

Standard & Poor’s Ratings Services has released a statement indicating that its ratings on Emerson Re Ltd.’s four bank loans were unaffected by CIG Reinsurance Ltd.’s decision to stop writing new business. S&P explained that “Emerson is a limited-life, special-purpose Class-B reinsurance company domiciled in the Cayman Islands, established specifically to provide aggregate excess-of-loss reinsurance protection to CIG Re and New Castle Re Ltd. CIG Re’s decision does not create additional credit risk for Emerson, and it does not increase the reinsurance treaty’s probability of attachment.” S&P also stated that it “believes that CIG Re and New Castle are able to pay the next premium payment due on Dec. 15. However, we also believe that failure to make this payment would not result in an impairment of the bank loans’ promised principal and interest because CIG Re and New Castle Re have pre-funded the risk premium payments through the current/second risk period. The reinsureds are obligated to continue to pre-pay premiums two quarters in advance on a rolling basis. The cedents will determine the attachment point for the reinsurance coverage Emerson provides in the second risk period in accordance with the agreed upon calculation in the reinsurance agreement, and it will be communicated by Jan. 31, 2009.”

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and an issuer credit rating of “a-” to Sagicor General Insurance (Cayman) Ltd. with stable outlooks. “These rating actions reflect Sagicor Cayman’s solid risk-adjusted capitalization, diversified business profile and the enhanced financial flexibility provided by its parent, Sagicor Life Jamaica Limited,” said Best. Sagicor Life is in turn owned by Barbados-domiciled Sagicor Financial Corporation (SFC). Best described the Company as “one of the largest financial institutions in the Caribbean,” adding that it is publicly traded on the London, Trinidad and Barbados stock exchanges. “Sagicor Cayman operates as a multiline insurer of health and non-life business and remains one of the leading insurance companies in the Cayman Islands,” Best continued. “Since being acquired by Sagicor Life in 2005, the company’s underwriting results have been favorable, as retained earnings have enabled Sagicor Cayman to enhance risk-adjusted capitalization to a level commensurate with its ratings.” Best added that due to Sagicor’s “heavy geographic concentration,” it had also evaluated its capitalization in light of its “modeled catastrophe exposure and its ability to withstand natural catastrophes. In addition, Sagicor Cayman has the commitment and support of SFC and benefits from synergies and significant operating efficiencies as a member of the SFC group of companies.”

A.M. Best Co. has commented that the ratings and outlook of New Castle Reinsurance Company Ltd. and New Castle Reinsurance Holdings Ltd., both based in Bermuda, “remain unchanged despite the challenges faced by their primary investors, Citadel Kensington Global Strategies Fund Ltd. and Citadel Wellington LLC (together known as the Funds). Citadel Limited Partnership is the manager of the Funds.” Best explained that in “recent months, the Funds reported material losses (which primarily have been driven by the recent dislocation in the credit markets) and decided to shut down an affiliated company writing collateralized reinsurance.” However, Best indicated that in its viewpoint these developments “have not merited a change in the rating and/or outlook of New Castle Re at this time. New Castle Reinsurance Holdings Ltd. is wholly owned by the Funds, which have reported their largest monthly losses in September 2008 and October 2008 due to the dislocation in the credit market and the volatility of the equity markets. Although the Funds have seen a dramatic decline in returns during 2008, investor redemptions to date have been in line with prior periods. Furthermore, the Funds have redemption terms that inhibit investors from withdrawing excessive amounts of assets beyond what is in the long-term best interest of the Funds including fees and an autonomous power to control redemption and/or distribution levels.” Best said it would continue to closely monitor the situation. Best added that, although the decision to place a related entity (presumably CIG Re – See above) in runoff would affect Castle Re, “any loss of premium volume is expected to be more than offset in part by the favorable rates in New Castle Re’s core lines of business, as well as, the increased opportunities available due to the large amount of capital lost in the property/casualty industry during 2008.” Castle Re had only minimal exposure to hurricanes Gustav and Ike, and has not suffered from investment losses.