S&P takes Bermuda holding companies off CreditWatch
S&P Global has taken 16 Bermuda-based holding companies of re/insurers off CreditWatch after determining that the risk of regulatory restrictions on payments from operating companies is low.
S&P had placed the companies, 15 of which were non-operating holding companies for property & casualty re/insurers and one was a long term re/insurer, on CreditWatch while it reviewed their status in November last year.
"Where the main operating company is a Bermuda-based re/insurer that is part of a group subject to the Bermuda Monetary Authority's insurance group supervision rules, we would generally consider potential regulatory restrictions to payments to be low," the ratings agency said.
S&P said the conclusion forms the basis of its ratings and determines the conditions under which senior debt issued at the holding company level would be eligible for inclusion in total adjusted capital (TAC) under our updated capital model criteria.
"In such cases NOHCs would generally be rated two notches below their core operating subsidiaries; any senior debt issued by the NOHC that lacks loss-absorbing features would generally not be eligible as debt-funded capital under our new capital adequacy methodology."
S&P said some regulators, including Israel and the US, had high potential regulatory restrictions to payments to their NOHCs.
"Our review of how regulatory restrictions might affect payments to NOHCs from insurers or reinsurers base din Bermuda included assessing the enforcement of regulatory rules that could limit upstreaming of cash to the NOHC," S&P said.
"Bermuda's regulatory framework has some characteristics that are comparable with those in the US. For example, the Bermuda Insurance Act uses formulaic considerations to control the payment of operating company dividends, which increases potential regulatory restrictions to payments. That said, overall, we believe the characteristics of Bermuda's framework are more aligned with insurance jurisdictions where we assess potential payment restrictions as low."
It added that where a re/insurer is subject to group supervision by the BMA, the holding company would be included in group solvency calculations.
"In our view, because the Bermuda Insurance Act's dividend considerations for operating companies involve regulatory notification as opposed to preapproval, they are unlikely to restrict cash flows from Bermuda-based operating companies to NOHCs unless the operating companies
or the group is close to breaching regulatory capital thresholds," the ratings agency said. "Similarly, we think the BMA's focus on group supervision, including its ability to oversee group solvency, suggests that it is less likely to restrict the flow of cash to the NOHC, even in more stressed scenarios.
"As a result, we generally consider that Bermuda-based operating companies are subject to low potential regulatory restrictions on their payments to NOHCs if they are part of groups subject to the insurance group supervision rules. Consequently, senior debt issued by these NOHCs would not be eligible as debt-funded capital in TAC, unless these instruments have loss-absorbing features."
S&P said the following companies had their ratings affirmed and were taken off CreditWatch Negative: Fidelis, RenaissanceRe, Lancashire and AXIS.
It said Enstar, Arch, Athene, Aspen, Hiscox and SiriusPoint had their ratings affirmed and were taken off CreditWatch.
Everest and Somerset Re had their BBB+ ratings affirmed and were taken off CreditWatch and Ascot had its BBB ratings affirmed and was taken off CreditWatch.
