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Agency withdraws ratings at PaCRe’s request

Island base: PaCRe has its offices in the American International building

Ratings agency AM Best has withdrawn its rating on Bermuda-based hedge fund-backed reinsurer PaCRe at the company’s request.

PaCRe, backed by the John Paulson hedge fund and Validus Re, was placed under review with negative implications in January due to a shortfall in performance caused by poor investment returns at the hedge fund.

AM Best rated PaCRe a A- (excellent) on financial strength and a similar issuer credit rating. At the same time the ratings were removed from under review with negative implications and given a negative outlook.

The firm removed PaCRe from its rating process after the company said it no longer wanted to participate.

AM Best said: “The negative outlook reflects PaCRe’s focused business profile in what has become a competitive property catastrophe reinsurance market and the overall performance of its alternative asset strategy relative to its original projected business plan.

“The company has not achieved its projected premium volume due to the current competitive market environment in property catastrophe reinsurance.

“However, it has produced positive underwriting results since inception despite a few significant loss events, which is a testament to the solid underwriting and strong cycle management capabilities of the underwriting manager.”

The AM Best report added: “Additionally, the alternative asset strategy has not performed as expected during PaCRe’s operation history, producing unrealised investment losses.

“Although management has made changes to the investment strategy in a an effort to reduce the volatility, it will take time for these changes to inure to the benefit of PaCRe.”

AM Best did not give reasons for why PaCRe asked to have its ratings withdrawn.

The joint venture reinsurer is one of the companies targeted by the US Treasury’s crackdown on hedge fund-backed reinsurers.

AM Best added: “PaCRe’s business plan will be challenged by established reinsurers as well as other alternative investment reinsurers entering the market and more property catastrophe capacity into an already overcapitalised reinsurance marketplace could pressure underwriting margins.”