AM Best has assigned an initial financial strength rating of A (Excellent) to Bermuda-based Grand Central Re Limited.

The company was set up in May, 2001 as a joint venture between Germany's second largest bank HypoVereinsbank and Bermuda-based reinsurer Max Re. It is a Class 4 Bermuda insurance company with initial capitalisation of $200 million.

The parties set up Grand Central Re to support various aspects of their respective worldwide risk management businesses and operating activities.

The rating of Grand Central Re was said to take in to consideration the company's conservative initial strategy of participating in a quota share retrocession agreement for life and non-life insurance business, underwritten and reinsured by Max Re, obtaining insurance management and underwriting services from Max Re and securing adequate capitalisation for the asset and insurance risks now held and being contemplated.

These favourable attributes are partially offset by the execution risk associated with any nascent operation, the initial capitalisation of $200 million, as well as Grand Central Re's investment portfolio, which is comprised of both alternative asset classes and traditional fixed income securities.

AM Best recognises the risks associated with this investment strategy and the volatility inherent in a portfolio of fixed income and alternative assets.

AM Best will closely monitor Grand Central Re's performance relative to its initial business plans and the impact of competitive market conditions and investment results which may not be consistent with historical results.