Arch Capital-backed Watford Re outlook changed over $300m loss due to COVID-19

AM Best has placed the financial strength rating of A- (Excellent) of Watford Re, a Bermuda-based specialty re/insurer backed by Arch Capital Group, under review with negative implications.

The rating action also applies to its subsidiaries, Watford Insurance Company Europe (WICE) (Gibraltar), Watford Insurance Company (WIC) (New Jersey) and Watford Specialty Insurance Company (WSIC) (New Jersey).

The action follows Watford’s announcement that its 2020 first quarter earnings will include a net investment loss of approximately $300 million due to investment market volatility following the global economic shutdown related to the COVID-19 pandemic. The net investment loss is expected to be predominantly comprised of unrealized mark-to-market losses to Watford’s non-investment grade, fixed-income portfolio.

AM Best said it expects to resolve the under review with negative implications status when Watford’s risk-adjusted capitalisation is restored back to its prior level. The agency will evaluate on an ongoing basis Watford’s risk-adjusted capitalisation and invested asset valuations as updated information becomes available.

However, it warned that further rating actions could be taken if AM Best believes Watford’s financial strength has continued to decay or it has not stabilised in a reasonable amount of time. Rating action may also be taken if AM Best believes Watford’s measured levels of balance sheet strength, operating performance, business profile, or enterprise risk management are no longer able to support its current rating level.