AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of a- of Watford Re Ltd. (Bermuda) and its subsidiaries, Watford Insurance Company Europe Limited (Gibraltar), Watford Insurance Company (Morristown, NJ), and Watford Specialty Insurance Company (Morristown, NJ). In addition, AM Best has affirmed the Long-Term ICR of bbb- and the Long-Term Issue Credit Rating of bb on the $225 million 8.5% cumulative preference shares of Watford Holdings Ltd. (Watford) (Bermuda), the groups ultimate holding company. The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Watfords balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Watfords risk-adjusted capitalization, as measured by Bests Capital Adequacy Ratio (BCAR), is categorized as very strong, and AM Best expects it to remain at a similar level in prospective years. The company maintains a good liquidity profile, with fixed-income securities and cash covering its net loss reserves as of year-end 2018, and efficiently deploys operating leverage to secure transactions with counterparties. Watford implements an alternative asset strategy through a contractual agreement with HPS Investment Partners, LLC., a New York-based, SEC-registered investment adviser.
The company has managed to achieve a modest level of profitability over the past five years (2014-2018), with negative underwriting results being offset by strong investment earnings. Going forward, AM Best expects the companys underwriting performance to improve and be more in line with the industry average.
Watford has developed a global reinsurance and insurance platform, with operations in Bermuda, the United States and Europe. Business is sourced and underwritten through a contractual relation with Arch Capital Group Ltd., which also provides the core functions to the companys underwriting operations. The majority of premium is written directly on Watford paper, and the balance through quota share reinsurance of Arch business. The book of business is focused on lower-volatility, medium-to long-tail lines of business, with minimum exposure to property catastrophe risks. ERM is considered appropriate relative to the companys risk profile.
This press release relates to Credit Ratings that have been published on AM Bests 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 AM Bests Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Bests Credit Ratings. For information on the proper media use of Bests Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Bests Credit Ratings and AM Best Rating Action Press Releases.
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