Best’s News & Research Service - November 22, 2017 01:39 PM (EST)
A.M. Best Affirms Credit Ratings of Kelvin Re Limited
- November 22, 2017 01:39 PM (EST)
London //BestWire// - A.M. Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Kelvin Re Limited (Kelvin Re) (Guernsey). The outlook of these Credit Ratings (ratings) remains stable.
The rating affirmations reflect Kelvin Re’s balance sheet strength, which is categorized as very strong by A.M. Best, as well as its neutral business profile, adequate operating performance and appropriate enterprise risk management (ERM) framework.
Offsetting rating factors include the company’s underwriting concentration in natural catastrophe reinsurance, its high level of dependency on Credit Suisse’s Insurance-Linked Strategies team and the increased investment risk arising from a non-traditional investment strategy, with approximately 40% of investments allocated to blue-chip hedge funds.
Kelvin Re is a privately owned start-up company based in Guernsey that provides short-tail property and specialty lines reinsurance. Since it commenced operation in late 2014, the company has derived its business solely from the origination capabilities of Credit Suisse’s Insurance-Linked Strategies team, a leading insurance-linked hedge fund, which had approximately USD 8.6 billion of assets under management.
During 2017, the company is projected to underwrite a globally diversified insurance portfolio, producing over USD 220 million of gross written premiums, with a heavy bias toward catastrophe-exposed business lines. The company is anticipated to report a technical and operating loss for the year, driven by the third quarter hurricane losses in North America. As a result, A.M. Best expects Kelvin Re’s combined ratio for 2017 to be in excess of 150%, compared with a combined ratio of 72% in 2016. Partially offsetting the weak underwriting performance are strong investment returns from hedge fund investments.
Kelvin Re’s balance sheet strength is very strong, as a result of the strongest level of risk-adjusted capitalization and a flexible retrocession programme focused on collateralised funds, which minimises counterparty credit risk. Capital requirements are mainly driven by Kelvin Re’s exposure to hedge fund investments; however, to absorb the volatility of these assets the company maintains a high level of capital and surplus, which stood at USD 662 million at the end of 2016. Prospective balance sheet strength is expected to remain very strong as the company expands its portfolio. Furthermore, the company has good financial flexibility with an irrevocable and unconditional letter of guarantee of USD 200 million from a lender with superior credit quality, backed by the sole shareholder, a Middle Eastern sovereign wealth fund.
Kelvin Re has developed an appropriate ERM framework, which centers on advanced modelling capabilities and flexible retrocession arrangements to manage underwriting risk. Due to its changing profile, the company also performs regular stress testing to ensure that its capital position remains supportive. In addition, the company utilises the expertise of specialist third party investment advisors to manage its hedge fund exposures.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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