AM Best Affirms Credit Ratings of Nectaris Re Ltd.
AM Best has affirmed the Financial Strength Rating of A (Excellent) and Long-Term Issuer Credit Rating of "a" (Excellent) of Nectaris Re Ltd. (Nectaris Re), the operating subsidiary of Nectaris Holdings Ltd. (both domiciled in Bermuda). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Nectaris Re's balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The company's business strategy is to retrocede all of its business to Horseshoe Re II Limited segregated accounts company (Horseshoe Re II) with cells that are funded by insurance-linked securities funds managed by Leadenhall Capital Partners LLP (Leadenhall). Leadenhall is a subsidiary of Mitsui Sumitomo Insurance Company, Limited (a subsidiary of MS&AD Insurance Group Holdings, Inc. or MS&AD). Leadenhall, which has a Mutual Cooperation Agreement with Nectaris Re, has had a book of business built since its inception in 2008.
The business written via both Lloyd's Syndicate 2001 (managed by MS Amlin Underwriting Ltd.) and MS Amlin AG (both whose ultimate parent is MS&AD), accounts for the majority of total limits ceded to Nectaris Re, and is 100% retroceded to Horseshoe Re II on a fully collateralized basis. Lloyd's Syndicate 2001 and MS Amlin AG's ceded business, is collaterized at the 1-in-1,000 aggregate exceedance probability (AEP) return period while retaining the associated tail risk. Nectaris also established a fronting relationship with Allianz Risk Transfer (Bermuda) Limited in 2022. Nectaris intends to increase its open market business to take advantage of the hard market with limited impact on its tail risk and capital. All open market business ceded to Horseshoe Re II is collateralized at the 1-in-2,000 AEP return period, with the associated tail risk retained by Nectaris Re. Collateral provided by Horseshoe Re II, which is comprised of cash and highly rated short-term assets, is held in trust accounts for the benefit of Nectaris Re.
AM Best projects Nectaris Re's risk-adjusted capital, as measured by Best's Capital Adequacy Ratio (BCAR), to remainat the strongest level over the near term (i.e., one to three years). The company's liquidity and quality of assets provide ample support of its balance sheet strength assessment. Partially offsetting these rating factors is Nectaris Re's relatively high dependency on third-party retrocession. However, all retrocession ceded limits will be written on a collateralized basis, thus minimizing Nectaris Re's counterparty risk. The ratio of the tail risk retained by Nectaris Re to its equity is expected to be low.
AM Best assesses Nectaris Re's overall operating performance as adequate based upon the historical operating results of Leadenhall-managed funds and the projected results of the retained tail risk, including income from ceding commissions. The company's pricing strategy is to focus on underwriting profits and not on asset returns.
AM Best assesses Nectaris Re's business profile as limited, as the company predominantly writes property catastrophe reinsurance contracts and some casualty and marine risk. Product concentration is mitigated somewhat by risk diversification across regions, perils and the number of cedants. Pricing sophistication and modeling capabilities, including reliance on vendor models and independent modeling tools, continue to create a favorable environment for management to execute its pricing strategy.
Due to Nectaris Re's Mutual Cooperation Agreement with Leadenhall, AM Best assesses the company's ERM capabilities as appropriate for its risk profile.
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