A.M. Best Revises Outlook to Negative for Greenlight Reinsurance, Ltd. and Greenlight Reinsurance Ireland, Limited

A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of A (Excellent) and the issuer credit rating (ICR) of “a” of Greenlight Reinsurance, Ltd. (Greenlight Re) (Cayman Islands) and Greenlight Reinsurance Ireland, Limited (Ireland).

A.M. Best has revised the outlook for the ICR to negative from stable and also affirmed the ICR of “bbb” of Greenlight Re’s holding company, Greenlight Capital Re, Ltd. (Greenlight Capital Re) (Cayman Islands) [NASDAQ:GLRE]. Since Greenlight Capital Re does not carry any debt, its ICR is strictly based on A.M. Best’s holding company methodology.

The negative outlook is driven by Greenlight Re’s less favorable underwriting results in recent years, including results for the nine months ended Sept. 30, 2015, which have fallen short of A.M. Best’s expectations. The company is showing an underwriting loss, albeit modest but below most peers, on its five-year trend through 2014. A.M. Best recognizes the remediation actions taken by the company’s management and is looking for further certainty that these issues won’t detract from prospective operating performance.

The ratings affirmations reflect Greenlight Re’s strong risk-adjusted capitalization, experienced management team and the disciplined implementation of its overall business strategy. The ratings also recognize the company’s enterprise risk management as it aggressively manages risks on both sides of the balance sheet.

These strengths are partially offset by the challenges Greenlight Re faces writing profitable business in a market with increased capacity and further competition from new reinsurance companies with a similar alternative investment strategy. Also detracting from the company’s strengths is the leverage resulting from an investment portfolio that is primarily composed of publicly traded equity securities. However, this concern has been diminished as Greenlight Re’s investment portfolio has performed well over the longer term.

Greenlight Re operates as a broker market reinsurer writing a combination of property, casualty and specialty reinsurance business. The company has been successful in building its underwriting team’s infrastructure and adding new business using a partnership-oriented approach to underwriting. This underwriting approach allows Greenlight Re to focus on a small number of large relationships, which enables pricing and structuring on a deal-by-deal basis. Underwriting and investment assumptions are combined to develop a risk profile on both sides of the balance sheet. Catastrophe aggregate downside limits are in place and capped at the board level. While Greenlight Re’s underwriting results to date have been modestly below expectations, its large surplus base supports the expected growth in premium volume.

While Greenlight Re’s capital footprint entails 100% common equity with no use of debt, A.M. Best is somewhat concerned with the asset risk represented by its equity-based investment portfolio. Mitigating this concern is the inherent partially hedged nature of the investment portfolio and the experience of the investment manager. More than 80% of the invested assets are in highly liquid investments, and generally no position can be greater than 20% of invested assets. A.M. Best’s rating approach involves assessing Greenlight Re’s risk correlations across the enterprise by subjecting its capitalization to concurrent adverse stress test events. The company’s robust risk-adjusted capitalization withstands substantial amounts of strain when subjected to these various stress scenarios.

Positive rating actions may result from improvements in Greenlight Re’s underwriting results, continued lack of catastrophe losses and positive investment performance.

Negative rating actions may result from continued adverse loss reserve development, severe negative investment results, significant loss of surplus and/or poor underwriting performance.

This press release relates to rating(s) 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 visit A.M. Best’s Ratings & Criteria Center.

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