AM Best has decided to remove Watford Re from under review with negative implications status, as the company is expected to continue to work towards de-risking its investment portfolio.
Watford Re was placed under review in May 2020 after reporting a net investment loss of $300 million in the first quarter of the year, as a result of COVID-19 impacts on financial markets.
However, AM Best now acknowledges that de-risking efforts have led to more stability in Watford Re’s capitalisation, which remains at the strongest level at year-end 2020, as measured by the rating agency.
The group’s five-year average operating returns have been volatile, and the company has experienced significant fluctuations in realized and unrealized gains and losses, but it has managed to remain profitable over the past four or five years.
AM Best also decided to affirm the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) of Watford Re Ltd. (Bermuda) and its subsidiaries, Watford Insurance Company Europe Limited (Gibraltar), Watford Insurance Company (New Jersey) and Watford Specialty Insurance Company (New Jersey).
The ratings reflect Watford’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
However, AM Best warned that a significant deterioration in the group’s operating performance, including outsized investment portfolio losses or a large underwriting loss, could put downward pressure on the ratings.
Negative rating actions could arise if risk-adjusted capitalization were to deteriorate materially or the group’s liquidity is compromised, or if the group does not realize the underwriting results anticipated with its strategic shift toward a more diversified book of business.
