A.M. Best Co. has affirmed the "A-minus" financial strength rating of Folksamerica Reinsurance Company and upgraded its outlook to stable.
The rating action for the White Mountains Insurance Group subsidiary follows Best's review of Folksamerica Re's overall risk management. It included an evaluation of the company's Bermuda-based sidecar reinsurers, Olympus Reinsurance Company Ltd. and Helicon Reinsurance Company Ltd.
The ratings were placed under review on June 16 following White Mountains' announcement that Folksamerica Re increased its gross loss estimates for Hurricanes Katrina, Rita and Wilma by $203 million, net of reinstatement premiums.
Best said also that White Mountains would reimburse Olympus for up to $137 million of the related losses ceded to Olympus under Folksamerica Re's quota share reinsurance treaty with Olympus.
White Mountains' reimbursement of Olympus maintained Olympus' viability as the cession from Folksamerica Re to Olympus would have eroded the bulk of Olympus' capital. This occurrence raised concern over Folksamerica Re's risk management controls and Olympus' and Helicon's current capacity for the business ceded to each vehicle, Best said.
The rating firm said it undertook a more detailed review of each sidecar to assess the future potential for "over the top risk" (tail risk) back to Folksamerica Re in certain loss scenarios using updated third-party software models with near-term view.
The rating affirmation of Folksamerica Re, Best said, recognizes its "excellent level of risk-adjusted capitalization on a stressed basis, recent changes to its risk management strategy and historical support received from White Mountains."
Nonetheless, Best said it remains concerned with the company's catastrophe exposure and the availability of additional retrocession capacity should material catastrophe-related property losses continue to ensue or the property market begin to soften.
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