OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has 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 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 affirmed the Long-Term Issue Credit Rating of “bbb-” on the $115 million 7% fixed senior unsecured notes due 2025 of TP USA. The outlook of these Credit Ratings (ratings) remains negative.
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.
TPRE’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), was categorized as strongest as of year-end 2019. Although the company’s surplus has been impacted by COVID- 19 related underwriting and investment losses, AM Best expects the company to maintain the strongest BCAR level in 2020. In 2019, the group’s allocation of investments to its higher-risk investment strategy, which exposes its capital to volatility, decreased significantly as the group redeemed about 50% of its investment in an affiliated fund. The proceeds from the redemption have been held in short-term investments.
TPRE has maintained a marginal level of operating performance over the past five years. Although the company has not reported an annual underwriting profit since inception, it continues to record improved underwriting performance and recently diversified its reinsurance portfolio, which 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.
The negative outlooks reflect AM Best’s concern over the company’s business profile given its historically lackluster return measures, with an average return on equity of 1.4% over the five years through year-end 2019. 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.
Additionally, AM Best considers risk management capabilities to be appropriate for TPRE’s risk profile.
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