Hiscox Sidecar Debt Rated By Best

A.M. Best Co. has assigned debt ratings to the two classes of loan obligations issued by Panther Re Bermuda Limited, a newly created reinsurance sidecar financial vehicle for Hiscox, a Lloyd's syndicate.

The Oldwick, N.J.-based rating agency assigned a rating of “triple-b-minus” to Senior Secured Term A Loans of up to $72 million and assigned a rating of “double-b” to the Term B Loans of up to $144 million.

The outlook for both ratings is stable, Best said.

Panther Re is a new Bermuda Class 3 insurer, acting as a dedicated reinsurance vehicle, or sidecar, which was created for the single purpose of providing commercial property reinsurance coverage for specified categories of business to its sole client and cedent, Syndicate 33, a Lloyd's syndicate managed by Hiscox Syndicates Limited.

Best said the assigned ratings take into consideration many factors including the annualized attachment probability.

The attachment probability is the probability of a first-dollar loss to the debt facilities, which was calculated based upon data compiled by Hiscox using AIR Worldwide Corporation's catastrophe modeling software system.

Additional simulation testing of historical loss ratios was also conducted on the deal model, Best said, noting that the additional simulation resulted in cumulative default probabilities within acceptable levels to support the assigned debt ratings.

Best said that Hiscox maintains a comprehensive system of internal control covering all aspects of risk, adding that Hiscox utilizes a risk committee, which monitors its risk management framework, identifies emerging risks and recommends appropriate strategies, among other things.

With respect to underwriting, the rating agency said that underwriters price the risk based on their professional judgment, market experience and recommendation of Hiscox's independent loss modeling team.

Best noted that a requirement to retain at least 60 percent of all gross property catastrophe reinsurance business written in 2007 gives Syndicate 33 underwriters incentives to produce and retain quality business.

Target business includes U.S. catastrophe excess of loss, European catastrophe excess of loss, Japanese catastrophe excess of loss, and worldwide accounts where the predominant exposure comes from one of those three areas.

Best said Syndicate 33's financial strength rating of “A” (excellent) is a strong indicator of its ability to manage its obligations.

Moody's and Standard & Poor's announced ratings for the two loans in early November.

Moody's ratings are “Baa3″ for the $72 million of senior loans (Term A) and “Ba2″ for the other loans (Term B).

At S&P, the ratings assigned were “triple-B-plus” for Term A and “double-B-plus” for Term B.