AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit ratings of “a” (Excellent) of Nectaris Re Ltd, the operating subsidiary of Nectaris Holdings Ltd, both of which are domiciled in Bermuda.

The outlook of these credit 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.

The company’s business strategy is to retrocede all of its business to Horseshoe Re II Limited segregated accounts company with cells that are funded by insurance-linked securities funds managed by Leadenhall Capital Partners LLP.

Leadenhall is a subsidiary of Mitsui Sumitomo Insurance Company Limited, a subsidiary of MS&AD Insurance Group Holdings Inc.

Leadenhall, which has a mutual co-operation agreement with Nectaris Re, has had a book of business built since its inception in 2008.

Nectaris Re’s business originated via both Lloyd’s Syndicate 2001 (MS Amlin Underwriting Limited) and MS Reinsurance (MS Amlin AG) — the ultimate parent of both being MS&AD — accounts for the majority of total limits ceded to Nectaris Re and is 100 per cent retroceded to Horseshoe Re II on a fully collateralised basis.

Lloyd’s Syndicate 2001 and MS Reinsurance-ceded business is collateralised at the 1-in-1,000 aggregate exceedance probability return period and those entities retain the tail risk above the 1-in-1,000 AEP level.

Nectaris also sources business via its open market operations to take advantage of the hard reinsurance market, with limited impact on its tail risk and capital.

All open market business ceded to Horseshoe Re II is collateralised 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 composed 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, to remain at the strongest level over the near term (ie, one to three years). The company’s liquidity and quality of assets provide ample support for 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 collateralised basis, thus minimising 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 investment returns.

AM Best assesses Nectaris Re’s business profile as limited, as the company predominantly writes property catastrophe reinsurance contracts. Product concentration is mitigated somewhat by risk diversification across regions, perils and the number of cedants.

Pricing sophistication and modelling capabilities, including reliance on vendor models and independent modelling tools, continue to create a favourable environment for management to execute its pricing strategy.

Due to Nectaris Re’s mutual co-operation agreement with Leadenhall, AM Best assesses the company’s ERM capabilities as appropriate for its risk profile.