14 May 2021ILS

AM Best assigns A rating to Nectaris Re

AM Best has assigned a financial strength rating of A (excellent) to Nectaris Re, an operating subsidiary of Nectaris Holdings, both of which are domiciled in Bermuda. The rating has a stable outlook.

AM Best classified Nectaris Re’s balance sheet as strongest and its operating performance as adequate, while its business profile was classed as limited and its enterprise risk management appropriate.

According to Nectaris Re’s business plan its business strategy is to retrocede all of its business to Horseshoe Re II segregated accounts company (Horseshoe Re II) with cells that are funded by insurance-linked securities funds managed by Leadenhall Capital Partners. Leadenhall is a subsidiary of Mitsui Sumitomo Insurance Company and has a mutual cooperation agreement with Nectaris Re.

The business written via MS Amlin, which is expected to account for approximately 90 percent of total limits ceded to Nectaris Re, will be 100 percent retroceded to Horseshoe Re II on a fully collateralised basis. Collateral will be provided by Horseshoe Re II at the 1-in-1,000 aggregate exceedance probability (AEP) return period, with the associated tail risk retained by MS Amlin.

All other business ceded to Horseshoe Re II will be collateralised at the 1-in-2,000 AEP return period, with the associated tail risk retained by Nectaris Re. Collateral provided by Horseshoe Re II, which will comprise of cash and highly rated short-term assets, will be held in trust accounts for the benefit of Nectaris Re.

AM Best projects Nectaris Re’s risk-adjusted capital, as measured by its capital adequacy ratio, to remain at the strongest level over the next three years, given its liquidity and the quality of its assets. AM Best noted its relatively high dependence on third-party retrocession as a potential concern, but said the fact that all retrocession ceded limits will be written on a collateralised basis minimises its counterparty risk. The ratio of the tail risk retained by Nectaris Re to its equity is expected to be low.

Nectaris Re predominantly writes property catastrophe reinsurance contracts and some casualty and marine risk. Product concentration is mitigated somewhat by risk diversification across regions, perils and the number of MS Amlin’s cedants, AM Best said.

Pricing sophistication and modeling capabilities, including reliance on vendor models and independent modeling tools, creates a favorable environment for management to execute its pricing strategy.