AM Best moves Third Point Re outlook to 'negative' over profitability concerns and management changes

Rating agency AM Best has revised the outlook of Bermuda-based reinsurer Third Point Re to negative from stable, expressing "concerns over the company’s business profile", its ability to make  underwriting profits, and the recent changes in its senior management including the  departure of its CEO Robert Bredahl.

According to AM Best, Third Point Re's negative outlook reflects its prolonged inability to generate an underwriting profit, which has resulted in an average combined ratio of 105.6 percent for the five years from 2014 to 2018.

"Third Point Re has achieved a level of marginal operating results on average over recent years. The company has not reported an underwriting profit since inception, and its investment results have been volatile and below AM Best’s expectations over the cycle," the agency said. "AM Best will continue to monitor the company’s underwriting performance closely in future years."

Furthermore, the agency stated that the recent changes in the reinsurer's senior management will need to prove beneficial to its market profile over the medium to long term.

It said that the company will need to enhance its business profile gradually and achieve a core portfolio of business that can deliver a sustainable level of technical profitability going forward.

Although the surplus has trended down over the past five years (2018-2014), AM Best expects the company to continue to run its operations while maintaining the strongest Best’s Capital Adequacy Ratio (BCAR) level.

AM Best added that an offsetting factor in its balance sheet strength assessment is TPRE’s high-risk investment appetite, which exposes its capital to potential short-term volatility. However, AM Best believes that the company’s investment adviser has begun to take appropriate actions to mitigate this risk and stabilize investment earnings going forward.

AM Best affirmed the carrier's financial strength rating of A-, which is categorised as "very strong", as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.

Third Point Re has a diversified reinsurance portfolio that historically focused on quota shares of lines of business with lower volatility. The company recently hired senior underwriters with extensive experience and began expanding into higher margin lines of business, including property catastrophe and specialty reinsurance. It has established strong relationships with reinsurance brokers and progressively grown its business footprint despite challenging market conditions. Additionally, AM Best considers risk management capabilities to be appropriate for Third Point Re’s risk profile.

Commenting in response to the rating changes, the company's newly-appointed CEO Dan Malloy said: “We are pleased to note A M Best’s recognition of our significant balance sheet strength and their confidence in our ability to maintain the strongest level of risk-adjusted capitalisation.

"Having announced record first quarter profits, we remain focused on improving underwriting profitability to complement our investment returns, a key driver of shareholder value in our model. We are encouraged that our recent expansion into property catastrophe and specialty lines reinsurance is being well supported by brokers and clients who understand our approach and appreciate our innovation, expertise, and responsiveness.”

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