Greenlight Re’s strong credit rating confirmed

Credit rating agency AM Best has confirmed a financial strength rating of ‘A- (excellent)’ and an issuer rating of ‘a- (strong)’ for Cayman-based reinsurer Greenlight Re. The rating for Greenlight Re’s holding company Greenlight Capital Re was confirmed at ‘bbb- (adequate)’.

Greenlight Re’s favourable issuer credit rating was due excellent risk-adjusted capitalisation, an experienced management team and the disciplined implementation of the company’s business plan, AM Best said in a statement.

Greenlight Re, which operates as a global property, casualty and specialty reinsurer, was able to enhance its balance sheet through a successful initial public offering in May 2007. However, the rating agency said positive factors were partially offset by the start-up nature of the reinsurer, a challenging marketing environment for underwriting new business and the leverage of the mainly equity securities-based investment portfolio.

The company was able to build its underwriting team and grow gross and net premiums written through approximately 60 transactions representing $880m net written premium between January 2006 and July 2009.

The rating agency stated that, ‘to date, Greenlight Re’s underwriting results are favourable, and its large surplus base supports the current and expected growth in premium volumes’, but added, ‘the ability of Greenlight Re to effectively develop its niche and build market acceptance can only be proven over time’.

The rating agency also noted that the reinsurer follows stringent underwriting and risk management guidelines.

In the second quarter of 2009 the reinsurer mainly benefitted from the performance of its investment portfolio.

The rating agency said it was slightly concerned over the asset risk of the company’s solely equity-based investment portfolio. However, it considered the absence of debt, the partially hedged nature of the portfolio, the experience of the investment manager and reasonable asset performance in a difficult equity market in 2008 as mitigating factors.

AM Best analysed correlating risks across the company through stress tests and found Greenlight Re’s risk-adusted capitalisation to be robust.