OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” of Third Point Reinsurance Company Ltd. (Bermuda) and Third Point Reinsurance (USA) Ltd. (Bermuda). AM Best also has revised the outlooks to negative from stable and affirmed the Long-Term ICRs of “bbb-” of Third Point Re (USA) Holdings, Inc. (TP USA) (Wilmington, DE) and its ultimate holding company, Third Point Reinsurance Ltd. (TPRE) (Bermuda). Concurrently, AM Best has revised the outlook to negative from stable and affirmed the Long-Term Issue Credit Rating of “bbb-” on the $115 million 7% fixed senior unsecured notes due 2025 of TP USA.
The ratings reflect TPRE’s balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.
The negative outlooks reflect AM Best’s concern over the company’s business profile given its prolonged inability to generate an underwriting profit, which has resulted in an average combined ratio of 105.6% for the five years from 2014 to 2018. Furthermore, recent changes in senior management will need to prove beneficial to TPRE’s market profile over the medium to long term. The company will need to enhance its business profile gradually and achieve a core portfolio of business that can deliver a sustainable level of technical profitability going forward.
TPRE’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), was categorized as strongest as of year-end 2018. Although surplus has trended down over the past five years (2018-2014), AM Best expects the company to continue to run its operations while maintaining the strongest BCAR level. An offsetting factor in AM Best’s balance sheet strength assessment is TPRE’s high-risk investment appetite, which exposes its capital to potential short-term volatility. However, AM Best believes that the company’s investment adviser, Third Point LLC, has begun to take appropriate actions to mitigate this risk and stabilize investment earnings going forward.
TPRE has achieved a level of marginal operating results on average over recent years. The company has not reported an underwriting profit since inception, and its investment results have been volatile and below AM Best’s expectations over the cycle. AM Best will continue to monitor the company’s underwriting performance closely in future years.
TPRE has a diversified reinsurance portfolio that historically focused on quota shares of lines of business with lower volatility. The company recently hired senior underwriters with extensive experience and began expanding into higher margin lines of business, including property catastrophe and specialty reinsurance. TPRE has established strong relationships with reinsurance brokers and progressively grown its business footprint despite challenging market conditions. Additionally, AM Best considers risk management capabilities to be appropriate for TPRE’s risk profile.
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