AM Best assigns A- rating to Watford Insurance

AM Best has assigned a financial strength rating (FSA) of A- and an issuer credit rating of a- to Watford Insurance Company Europe (WICE) (Gibraltar). The outlook assigned to both ratings is stable.

WICE is a wholly owned subsidiary of Watford Re.

AM Best said its ratings were based on WICE’s strong risk-adjusted capitalisation; experienced underwriting partner led by Arch Underwriters, a wholly owned subsidiary of Arch Capital Group; leading investment acumen of Highbridge Principal Strategies, (HPS); and WICE's particular component of Watford Re’s broad-based business plan.

Partially offsetting these positive rating factors, according to the rating firm are the inherent risks associated with a start-up company and the risks associated with a subsidiary with a limited geographic footprint.

“In addition, the competitive market conditions in the insurance and reinsurance sectors in Europe and the United Kingdom may challenge the execution of the business plan,” said AM Best.

“AM Best believes that the underwriting risk coupled with the alternative investment strategy creates an elevated risk profile that could expose WICE on the asset and liability sides of the balance sheet.

“However, the skilled underwriting of Arch Capital Group, coupled with the experienced investment acumen of HPS will help manage these risks.”

Key rating factors that could result in positive rating actions, according to the firm would be Watford Re and WICE meeting or exceeding its business plan over the long term, which includes consistently strong operating results while maintaining strong risk-adjusted capitalisation.

It said negative rating actions could occur if Watford Re or WICE's operating performance is volatile, if the companies experience large underwriting or investing losses or if risk-adjusted capitalisation becomes strained.