Rating agency A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Hamilton Re, Ltd. (Hamilton Re) (Hamilton, Bermuda), formerly S.A.C. Re, Ltd. (SAC Re) (Hamilton, Bermuda).
Best said in a rating announcement Monday that the outlook for both ratings is now stable.
According to the Oldwick, N.J.-based rating agency, the actions are based on Hamilton Re’s excellent risk-adjusted capitalization, knowledgeable management team and prudent business plan.
Best noted, however, that the start-up nature of the company, the greater investment risk associated with an alternative investment strategy, and increased competition in the reinsurance marketplace are among the factors that could challenge some of the company’s business plans.
The rating agency also expressed concern over the potential for Hamilton to be exposed to a convergence of underwriting risk and the risk of an alternative investment strategy, noting that gross investment leverage used by one of the new investors—Two Sigma Investments—is higher than other alternative investment strategies.
While these risks adversely affect risk-adjusted capital, they are mitigated by Hamilton’s low underwriting leverage and experienced underwriting team, Best said, adding that the investment leverage concerns are also mitigated by the partially hedged nature of the portfolio, the large number of diversified liquid investments, and the investment manager’s lengthy investment track record.
Earlier this month, Steven A. Cohen, the billionaire founder of SAC Capital Advisors LP, agreed to sell S.A.C. Re, Ltd., a reinsurer he formed in 2012 to Two Sigma Investments and former Marsh & McLennan Cos. Chief Executive Officer Brian Duperreault.
Source: A.M. Best