A.M. Best Co. announced downgrades of two Bermuda insurers, Endurance Specialty and IPC Re, related to the companies' exposures to Hurricane Katrina.
Best today dropped the financial strength ratings of the operating units of Endurance Specialty to "A-minus" from "A," and yesterday pushed those of IPC Re down to "A" from "A-plus."
The Oldwick, N.J.-based rating agency downgraded Endurance's various debt ratings for the holding company, Endurance Specialty Holdings, explaining the rating action was taken because the carrier's share of Hurricane Katrina losses was outside of A.M. Best's original expectations for a diversified multi-line reinsurance company.
"Endurance's business mix profile, which includes property, casualty and specialty lines of business, was expected to have more limited correlation and produce less overall volatility," Best said. However, Endurance has a strong market profile, the rating agency said, which enabled it to re-capitalize immediately following Hurricane Katrina.
The company's recently completed capital raising activities bring its risk-based capital to an appropriate level for its new rating and outlook, which is stable, Best said.
As for IPC Re, Best said the drop in financial strength rating from the coveted "A-plus" level applied to reinsurance subsidiaries IPCRE Limited (Bermuda) and IPCRe Europe Limited.
Best said the downgrades reflect the decline in IPCRe's risk-adjusted capital position due to the group sustaining net losses from Hurricane Katrina and other catastrophe events of $856 million.
The group's reported shareholders' equity on Sept. 30 was $1.1 billion, Best said, adding that the rating agency does not believe the $600 million in capital raised through a recent public offering is sufficient to support the volatility of the group's monoline property catastrophe focus at its former "A-plus" level.
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