A.M. Best Affirms Ratings Of Watford Re Ltd.

September 12, 2015

Rating company A.M. Best has affirmed the financial strength rating of A- [Excellent] and the issuer credit rating [ICR] of “a-” of Watford Re Ltd. [Watford], as well as the ICR of “bbb-” of Watford Holdings Ltd. Both companies are domiciled in Hamilton, Bermuda.

Concurrently, A.M. Best has affirmed the issue ratings of “bb” on the $225 million 8.5% cumulative preference shares of Watford Holdings Ltd. The outlook for all ratings is stable.

A statement from the ratings agency said, “The ratings are based on Watford’s strong risk-adjusted capitalization, experienced underwriting led by Arch Underwriters Ltd., a wholly owned subsidiary of Arch Capital Group Ltd., leading investment acumen of Highbridge Principal Strategies, LLC [HPS] and Watford’s broad-based business plan.

“Partially offsetting these positive rating factors are the inherent risks associated with a start-up company and the risks associated with a leveraged investment strategy, although leverage employed to date has been well under A.M. Best’s tolerance. In addition, the competitive market conditions in the reinsurance sector may challenge the execution of the business plan.

“A.M. Best believes that the underwriting risk coupled with the leveraged investment strategy creates an elevated risk profile that could expose Watford on the asset and the liability sides of the balance sheet. However, the skilled underwriting of Arch Capital Group Ltd. and the experienced investment acumen of HPS, along with cash flows produced by Watford’s credit investment strategy, will help manage these risks.

“Watford’s assets are managed by HPS, a subsidiary of Highbridge Capital Management, LLC, a New York-based, SEC-registered investment adviser. Watford’s assets are not comingled with any HPS-managed funds with other investors of HPS.

“Key rating factors that could result in positive rating actions would be Watford meeting or exceeding its business plan over the long term, which includes consistently strong operating results while maintaining strong risk-adjusted capitalization. Negative rating actions could occur if Watford operating performance is weak or inconsistent, if the company experiences large underwriting or investing losses or if risk-adjusted capitalization becomes strained.”

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