Watford Re raises capital, secures rating
Watford Re, the Bermuda-based start-up reinsurer partly backed by Arch Capital Group, is ready to start writing business on its own paper after raising $500 million and securing a rating of A- from AM Best.
The company has raised $500m of capital, $400m in cash and $100m of preferred equity. Arch Capital owns 15 percent of the firm’s common shares.
Arch Capital Group’s newly-formed subsidiary Arch Underwriters is acting as reinsurance manager for the business formed in association with Highbridge Capital Management, which will manage its investments.
Led by John Rathgeber, who was until recently vice chairman of Arch Worldwide Reinsurance Group, the company will also utilise third-party investors while also entering into some quota-share agreements with Arch.
Commenting on the new rating, AM Best said the rating is based on Watford's strong risk-adjusted capitalisation, experienced underwriting led by Arch Underwriters and broad-based business plan.
“Partially offsetting these positive rating factors are the start-up nature of the company and the risks associated with a leveraged investment strategy along with competitive conditions in the reinsurance market that may challenge the execution of the business plan,” AM Best said.
The rating agency added that underwriting risk coupled with the leveraged investment strategy creates an elevated risk profile that could expose Watford on both the asset and liability sides of the balance sheet. However, the skilled underwriting of Arch Capital Group and the experienced investment acumen of Highbridge Principal Strategies along with cash flows produced by Watford's credit investment strategy will help manage these risks.
It also added that it anticipates that Watford's management will be challenged by competition from established reinsurers as well as other start-up entities and alternative capital. The addition of more capacity to an already overcapitalised reinsurance marketplace could pressure underwriting margins.
