Bermuda reinsurer IPC Holdings Ltd. has had its A (excellent) financial strength rating affirmed by AM Best.

But Best has maintained its negative outlook on the rating because it believes IPC has not optimised its use of capital.

"The negative outlook is reflective of IPCRe's delayed initiative regarding a formal enterprise risk management (ERM) framework which in AM Best's view has affected the company's ability to optimise its capital resources," Best commented.

"Long-term return on equity measures for IPCRe remain in the mid single-digit range. While many of IPCRe's metrics are skewed as a result of the unprecedented losses associated with hurricanes Katrina, Rita and Wilma in 2005, in the three years since the storms it does not appear that IPCRe has optimised its use of capital, which could have resulted in stronger, consistent and sustainable returns."

The issuer credit rating of "a" of the reinsurance subsidiaries of IPC was also affirmed. AM Best also affirmed the ICR of "bbb" and the indicative ratings for securities available under shelf registration, which include the "bb+" on the preferred stock, the "bbb" on the senior unsecured debt and the "bbb-" on the subordinated debt of IPCRe. The outlook for all ratings is negative.

Best said the affirmations reflect IPCRe's strong balance sheet and well established presence within the property catastrophe reinsurance market. The company has maintained a strong position in the property catastrophe reinsurance market since inception, retains many long-term client relationships and has had strong employee retention.

IPCRe had a relatively strong underwriting year compared to its peers through the first nine months of 2008 and continues to maintain a strong risk-adjusted capital position.

Best noted the progress that IPCRe has made with regards to implementing a comprehensive ERM framework, including the hiring of a risk officer to expedite these initiatives. In addition, the company has a clean balance sheet, which is absent of latent liabilities due to its focus on short-tail property catastrophe business. Best said IPCRe "maintains a low expense ratio, lean organisational structure and a business profile that should place the company in a good position to benefit from the hardening property catastrophe market in 2009".