A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) of Goshawk Reinsurance Ltd. (Goshawk Re), Bermuda, and removed the rating from under review, the agency said yesterday.

Goshawk Re, one of the post September 11, 2001 start-ups, had been put under review with negative implications after problems were made public about the parent company's problems generated by the group's Lloyd's operation.

But yesterday the agency said that after discussions with the Goshawk group and the ongoing protection of Goshawk Re's capital from problems said that the "ongoing maintenance of risk-adjusted capitalisation at Goshawk Re is more than commensurate with the rating".

Best said that the negative outlook reflected the increased uncertainty of Goshawk Re's market profile and consequent prospective operating performance, particularly resulting from the challenge of building an attractive ongoing book and avoiding adverse selection.

Best placed the rating under review with negative implications following an announcement by the parent, Goshawk Insurance Holdings plc, that it may breach its banking covenants due to the need for additional reserve strengthening at Lloyd's Syndicate 102, and the potential impact that any shortfall of funding at the syndicate may have on the group's overall financial flexibility. The banking covenants have since been suspended reflecting ongoing support from Goshawk's banks.

The report said: "In A.M. Best's opinion, Goshawk Re is not materially exposed to losses arising from reinsurance of syndicate 102's business, as there is only a very minor exposure to pre-2002 business. "

But Best said the Bermuda subsidiary had excellent risk-adjusted capitalisation and the rating reflected the division's stand-alone financial strength.

"In A.M. Best's opinion, the company has a substantial excess of both current and prospective risk-adjusted capital relative to its financial strength rating despite the need to fund repayments of the $65 million term debt issued by its immediate holding company," said a Best release.

Best said, however, there was increased uncertainty over operating performance and that while current market conditions continue to support the potential for good operating performance, this is obviously highly dependent on the quality of business which Goshawk Re will write.

And it said the company would have a weakened business profile, as it is likely to suffer from the weakened group profile, and this has been factored into business generation and performance expectations.

"Furthermore, the company's original business plan to develop a core book of third-party business was delayed by virtue of specific class underwriting positions and key management roles being filled later than planned," it added.