S&P places 16 Bermuda re/insurer holding companies on credit watch

Ratings agency S&P has placed the holding companies of 15 Bermuda-based property & casualty re/insurers and one Bermuda-base dlife re/insurer on credit watch with negative implications. 

The agency said it had taken the action on the non operating holding companies (NOHCs) to reflect “the potential reassessment of our base-case assumptions on regulatory restrictions to payments from Bermuda-based re/insurance operating entities to NOHCs”.

S&P added: “We will review the enforcement of regulatory rules in Bermuda that could limit or restrict cash flow movements from the operating entity to the NOHC.”

The companies are: Arch Capital Group, Ascot Group, Aspen Insurance Holdings including Highlands Holdings Bond Co-Issuer and Highlands Holdings Bond Issuer, AXIS Capital Holdings, Enstar Group, Everest Group and Everest Reinsurance Holdings, Fidelis Insurance Holdings, Hiscox, Lancashire Holdings, RenaissanceRe Holdings along with DaVinciRe Holdings and SiriusPoint. 

The life re/insurer is Athene Holding. 

S&P said it generally rates NOHCs of insurance groups two notches below their core operating subsidiaries if potential restrictions to payments are low and three notches if high.

“If, in our view, the enforcement of regulatory rules results in a higher likelihood of restrictions on the upstreaming of cash flow, then we will likely lower the ratings on the NOHCs, and the ratings on the instruments issued or guaranteed by these NOHCs, by one notch,” S&P said. 

“Alternatively, we may maintain the ratings on these NOHCs at two notches below the ratings on the core re/insurance operating entities, and maintain the existing issue ratings, if we conclude that the potential regulatory restrictions to payments are low.”

The agency said: “Furthermore, if we determine that the potential restrictions to payments are high, we could affirm the ratings on these NOHCs, on a case-by-case basis, if there are potential mitigants such as:

• “The NOHC generates sufficient earnings from operating entities that are subject to low regulatory restrictions to payments, or generates significant cash flows from unregulated operating subsidiaries or own business activities, or

• “The holding company regularly maintains a significant amount of unencumbered cash or high-quality fixed-income assets to sustainably meet its ongoing obligations.

“If there is any change in ratings on the NOHCs, this will not affect the ratings on the re/insurance operating entities of these NOHCs.”

S&P said that at the time of this action, it did not apply its updated capital model criteria to these Bermuda-based groups. 

“We have not placed our ratings on these entities under criteria observation because we do not expect to take rating actions on them as a result of the updated criteria,” it said. “Our view of the potential regulatory restrictions to payments is relevant for our assessment of debt-funded capital credit for debt issuances under our updated capital model criteria.”

S&P said it would engage with the issuers and the relevant external third parties and intended to resolve the CreditWatch placement as soon as possible based on its analysis of the above-mentioned regulatory restrictions and mitigants.

With regard to Athene, S&P said it could lower, affirm or raise its rating depending on the combination of our revised view of potential payment restrictions and the strength of support from parent company Apollo's asset management business, which may serve as a mitigant.

Aspen is also owned by Apollo. 

It noted that the ratings on Athene's operating insurance subsidiaries were not affected by any rating actions on AHL.

It added: “The potential for nonregulated cash flow from AGM may help AHL service its obligations if its regulated insurance subsidiaries experience stress. While there are no contractual obligations or guarantees between AGM and AHL with regards to each other's debt and hybrids, we do believe there will be strong incentives for such support, if needed, as both are part of the same group.”