A.M. Best Affirms Credit Ratings of Kelvin Re Limited

LONDON--(BUSINESS WIRE)-- 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 ratings reflect Kelvin Re’s strong risk-adjusted capitalisation, an experienced management team that has produced positive earnings since inception in 2014, and a solid risk management framework. Offsetting rating factors include the company’s underwriting concentration in natural catastrophe reinsurance, the 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 50% 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 operations in late 2014, the company has derived its business solely from the distribution reach of Credit Suisse’s Insurance-Linked Strategies, a leading insurance-linked hedge fund, which has approximately USD 7.1 billion of assets under management.

During 2016, the company has generated a globally diversified portfolio of natural catastrophe reinsurance exposures in excess of USD 150 million of gross premiums. Kelvin Re’s risk-adjusted capitalisation is strong, as a result of moderate underwriting leverage and a flexible retrocession programme managed to minimise 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 643 million in 2015. Prospective risk-adjusted capitalisation is expected to remain 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.

Given its higher risk profile, Kelvin Re has developed a robust risk management framework, which centres 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 exposure to hedge funds.

Current headwinds in the global reinsurance market continue to present challenges for Kelvin Re’s business plan. So far in 2016, the company has been able to secure top-line revenues in line with its original targets, and is expected to report a profit for the year, but underwriting margins and investment yields remain subject to the pressure of the current challenging operating environment. Moreover, Kelvin Re’s investment in hedge funds generates the potential for a reduction in liquidity and increased investment risk. However, these risks are partially offset by alternative sources of liquidity.

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.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.

View source version on businesswire.com: http://www.businesswire.com/news/home/20161116006323/en/

A.M. Best
Pablo Vasquez, +44 20 7397 0311
Financial Analyst
[email protected]
or
Ghislain Le Cam, CFA, FRM, +44 20 7397 0268
Associate Director, Analytics
[email protected]
or
Christopher Sharkey, +1-908-439-2200, ext. 5159
Manager, Public Relations
[email protected]
or
Jim Peavy, +1-908-439-2200, ext. 5644
Director, Public Relations
[email protected]

Source: A.M. Best

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