A.M. Best has affirmed the issuer credit rating (ICR) of “aa” of the Maiden Re – ARI Reinsurance Trust Agreement (trust) (Mt. Laurel, NJ). The outlook for the ICR is stable.
This trust agreement, with an effective date of Jan. 1, 2010, is between Maiden Reinsurance Company (Maiden Re, the grantor), a corporation organized under the laws of the state of Missouri, and ARI Mutual Insurance Company and ARI Casualty Company (collectively known as ARI, the beneficiary), both corporations organized under the laws of the state of New Jersey and State Street Bank and Trust Company, a Massachusetts trust company (the trustee).
The trust collateralizes liabilities assumed by Maiden Reinsurance North America, Inc. (MRNA), (formerly Maiden Reinsurance Company) from ARI. MRNA and ARI are wholly responsible for determining the liabilities (the collateral base), which consist of case loss reserves, incurred but not reported losses and unearned premiums, net of open balances. The collateral base of the trust represents the amount ARI expects the trust to secure as payments under various reinsurance agreements with MRNA.
As of Nov. 30, 2014, the trust contains investment assets (as reported by the trustee), with a total market value greater than or equal to the necessary collateral—an amount determined by dividing the collateral base by a factor (the advance rate) provided by A.M. Best. As long as the market value of the trust assets is greater than or equal to the necessary collateral, the trust will maintain its ICR of “aa”. The necessary collateral may change from time to time depending on: the revision of the collateral base as determined by MRNA and ARI; the type of investment asset and its duration; and adjustments to the advance rate for the securities in the trust.
A.M. Best’s ICR for the trust considers the following: an evaluation of specific risks, such as market and operational risks, which may affect the value of the assets in the trust; whether the amount in the trust will be sufficient to meet MRNA’s obligation to pay an amount equal to the collateral base; the duration of the investment asset in the trust; and the uncertainty surrounding the treatment of the trust’s assets in the event of MRNA’s impairment or insolvency. A.M. Best is not responsible for determining the adequacy of the collateral base, any errors or miscalculations of the collateral base or whether the collateral base accurately reflects the current liabilities under the various reinsurance agreements between ARI and MRNA.
Events that could cause negative rating actions include the failure of MRNA to remedy the shortfall if adverse market conditions occur, which would cause the value of the assets in the trust to fall below the necessary collateral amount; and trust assets that deviate from investment guidelines, which restrict the type of investments that can be deposited in the trust.
The analytics for the ICR address “tail risk”—the risk associated with the value of the trust’s assets should it fall below the collateral base within a given confidence interval.
The methodology used in determining this rating is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria report utilized:
- Assessing the “Tail Risk” of Sidecars
For access to special reports, analytical methodologies and transactions relating to insurance-linked securities, please visit http://www3.ambest.com/sfc/.
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
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