Ratings firm AM Best has affirmed the financial strength rating of A (excellent) and issuer credit rating of “a” of Cayman-based, hedge fund-backed Greenlight Reinsurance, Ltd.Concurrently, the company has affirmed the ICR of “bbb” of Greenlight Re’s holding company, Greenlight Capital Re, Ltd. (Greenlight Capital Re). The ICR of Greenlight Capital Re is strictly based on the holding company’s methodology since the company does not carry debt. The outlook for all ratings is stable. All companies are domiciled in the Cayman Islands.According to AM Best, the ratings of Greenlight Re are based on its excellent risk-adjusted capitalisation, experienced management team and the disciplined implementation of its overall business strategy. The ratings also recognise the company’s exceptional 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,”AM Best said. “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 time.”Greenlight Re operates as a Cayman Islands-based broker market reinsurer writing a combination of property, casualty and specialty reinsurance business.AM Best said Greenlight Re’s underwriting results to date are favourable, and its large surplus base supports the current and expected growth in premium volume. The underwriting acumen of the team performed well as the company took very minimal catastrophe losses in 2011, which proved to be a high cat event year.“While Greenlight Re’s capital footprint entails 100 percent common equity with no use of debt, AM Best is somewhat concerned with the asset risk represented by its equity-based investment portfolio,” the company said. “Mitigating this concern is the absence of financial leverage, the partially hedged nature of the investment portfolio and the experience of the investment manager.”AM Best said the risk of the investment portfolio was stressed in 2008 when it lost 17.8 percent, followed by a return of 32.1 percent in 2009. More than 80 percent of the invested assets are in highly liquid investments and generally no position can be greater than 20 percent of invested assets.