Asia Capital Re’s financial strength in question following China deal

The financial strength ratings (FSR) of Asia Capital Re have been placed under review with developing implications by AM Best and on CreditWatch with negative implications by S&P Global Ratings.

These actions follow the news that Asia Capital Re’s holding company, ACR Capital Holdings, is to be acquired by two Chinese state-owned investment corporations, Qianhai Financial Holdings (QHFH) and Shenzhen Investment Holdings (SIHC).

AM Best’s current financial strength rating for Asia Capital Re and Asia Capital Reinsurance Malaysia (ACRM) is A- (Excellent), although the rating is expected to remain under review until the close of the transaction or the conclusion of the rating agency’s assessment of its impact on the ratings.

S&P said that it has placed Asia Capital Re’s FSR of A- on CreditWatch with negative implications because of concerns over the new shareholders’ lack of a track record when making overseas reinsurance investments.

ACR Capital Holdings will be QFH and SIHC’s sole overseas reinsurance investment. S&P has said it has little information on which to base its expectations as to how the shareholders will manage Asia Capital Re’s capital, investments, business strategy and growth.

S&P suggested Asia Capital Re’s excess capital position, or the reinsurer's adoption of a riskier investment strategy, could undermine its financial risk profile.

The transaction is expected to close during the fourth quarter of 2016, pending regulatory approval.