Bermuda reinsurers RenaissanceRe Holdings and PartnerRe were yesterday given a vote of confidence by rating agency AM Best the day after they announced a combined $255 million write-down due to their exposure to the US sub-prime mortgage crisis.

Best said the strong ratings of both companies and their affiliates would remain unchanged.

Despite the write-downs, Best expects both companies to post strong operating profits and to maintain strong capitalisation.

RenRe's shares shares fell $3.75 (six percent) yesterday to close on $55.01, while PartnerRe's stock price suffered less damage, falling $1.47 (two percent) to close on $79.08. Other Bermuda companies which have made public varying levels of sub-prime exposure, also had a bad day on the markets. Bond insurer Security Capital Assurance (SCA) saw its share price fall 15 percent yesterday, while XL Capital, which owns around 46 percent of SCA, fell 13 percent to close on $44.39.

The shares of another Bermuda bond insurer, Assured Guaranty, also took a sharp fall, dipping 16 percent to close on $18.42.

RenRe and PartnerRe own substantial stakes in Bermuda-based bond reinsurer ChannelRe — stakes which they now consider worthless.

RenRe's 32.7 percent share of the company was valued at $126.7 million at September 30, 2007, while PartnerRe's 20 percent share was valued at $74 million.

The companies expect to write down those amounts in their imminent fourth-quarter results, as ChannelRe's predicted losses in the last three months of last year, relating to financial guaranty contracts with bond insurer MBIA, surpass its entire shareholders' value.

In addition, RenRe also announced plans to increase its incurred but not reported (IBNR) reserves by $55 million to reflect estimated losses associated with exposure to sub-prime casualty losses.

Best said yesterday it had anticipated the devaluation of ChannelRe when it recently upgraded RenRe's financial strength rating (FSR) to A+ and its issuer credit rating to a-.

Best added: "RenaissanceRe's management has stated that it anticipates a profitable fourth quarter 2007 and full year, including these charges. AM Best expects RenaissanceRe to maintain its strong level of capitalisation, superior risk management techniques and position as a market leader in global property catastrophe reinsurance."

Best announced that PartnerRe's FSR would stay at A+ and their ICR at a-.

Best stated: "Although this charge will affect net income for fourth quarter 2007, AM Best expects that PartnerRe will likely report another very strong operating performance for the full year of 2007 while maintaining superior capitalisation.

"In total, PartnerRe maintains a conservative investment portfolio with the majority of its assets held in fixed income holdings of strong credit quality."