AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Nectaris Re Ltd. (Nectaris Re), the operating subsidiary of Nectaris Holdings Ltd. (both domiciled in Bermuda). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Nectaris Re’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).

Nectaris Re’s business strategy is to retrocede all of its business to Horseshoe Re II Limited segregated accounts company (Horseshoe Re II), with cells that are funded by insurance-linked securities funds managed by Leadenhall Capital Partners LLP (Leadenhall). Leadenhall is a subsidiary of Mitsui Sumitomo Insurance Company, Limited (a subsidiary of MS&AD Insurance Group Holdings, Inc. [MS&AD]). Leadenhall, which has a Mutual Cooperation Agreement with Nectaris Re, has had a book of business built since its inception in 2008.

Nectaris Re’s business, originated via both Lloyd’s Syndicate 2001 (MS Amlin Underwriting Limited) and MS Reinsurance (MS Amlin AG), both whose ultimate parent is MS&AD, accounts for most of the total limits ceded to Nectaris Re and is 100% retroceded to Horseshoe Re II on a fully collateralized basis. Lloyd’s Syndicate 2001 and MS Reinsurance-ceded business is collateralized at the 1-in-1,000 aggregate exceedance probability (AEP) return period and those entities retain the tail risk above the 1-in-1,000 AEP level. Nectaris Re also sources substantial business via its open market operations. Historically, all open market business retroceded to Horseshoe Re II was collateralized at the 1-in-2,000 AEP return period, with the associated tail risk retained by Nectaris Re. Beginning in 2024, the Horseshoe Re II retrocession for the open market business will be collateralized at a lower level than in prior years, but not less than the 1-in-250 AEP level, with Nectaris Re retaining the tail risk above that level. Collateral provided by Horseshoe Re II, which is composed of cash and highly rated short-term assets, is held in trust accounts for the benefit of Nectaris Re.

AM Best projects Nectaris Re’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), to remain at the strongest level over the near term (i.e., one to three years). The company’s liquidity and quality of assets provide ample support for its balance sheet strength assessment. Partially offsetting these rating factors is Nectaris Re’s relatively high dependency on third-party retrocession. However, all retrocession ceded limits will be written on a collateralized basis, thus minimizing Nectaris Re’s counterparty risk. Despite the reduction to the Horseshoe Re II collateralization level noted above, the ratio of the tail risk retained by Nectaris Re to its equity is still expected to be low.

AM Best assesses Nectaris Re’s overall operating performance as adequate based upon solid gross and net underwriting results in 2022 and 2023, along with the historical operating results of the reinsurance portfolio of the Leadenhall-managed funds from which the Nectaris Re portfolio was formed, and the projected performance results of the retained tail risk. Although, the company’s strategy is to focus on underwriting profits and not on investment returns, it has benefited from the higher interest rate environment by earning additional investment income. Ceding commission also makes up a substantial portion of Nectaris Re’s net income.

AM Best assesses Nectaris Re’s business profile as limited, as the company predominantly writes property catastrophe reinsurance contracts. Product concentration is mitigated somewhat by risk diversification across regions, perils, and the number of cedants. The company’s pricing sophistication and modeling capabilities, including vendor models and independent modeling tools, enable management to execute its pricing strategy.

Due to Nectaris Re’s Mutual Cooperation Agreement with Leadenhall, AM Best assesses the company’s ERM capabilities as appropriate for its risk profile.

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