OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has placed under review with developing implications the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” of Third Point Reinsurance Company Ltd. (Bermuda) and Third Point Reinsurance (USA) Ltd. (Bermuda). AM Best also has placed under review with developing implications the Long-Term ICRs of “bbb-” of Third Point Re (USA) Holdings, Inc. (TP USA) (Wilmington, DE) and its ultimate holding company, Third Point Reinsurance Ltd. (TPRE) [NYSE: TPRE] (Bermuda). Concurrently, AM Best has placed under review with developing implications the Long-Term Issue Credit Rating of “bbb-” on the $115 million 7% fixed senior unsecured notes due 2025 of TP USA.
The under review rating action follows the group’s announcement that TPRE has entered into a definitive agreement to acquire Sirius International Insurance Group, Ltd. (SIIG) (Bermuda) [NASDAQ: SG] at a transaction value of approximately $788 million. TPRE will finance the transaction through a combination of cash-on-hand and equity issued to Sirius Group shareholders. SIIG currently has $685 million of debt that will remain outstanding and $223 million of preferred shares, which will be redeemed as part of the transaction.
AM Best will continue to hold discussions with TPRE management and monitor the group’s balance sheet strength, operating performance, business profile and enterprise risk management. The transaction is expected to close in the first quarter of 2021, subject to customary closing conditions and regulatory approvals. The ratings will remain under review until the close of the transaction and a review by AM Best of the post-transaction details.
The under review with developing implications status reflects the need for AM Best to fully assess the financial and operational impacts of the SIIG acquisition, including potential benefits to TPRE’s group business profile following the close of the transaction. The addition of the SIIG business is expected to add approximately $1.9 billion to TPRE’s $600 million in gross premium written. The additional business not only adds size, which is expected to enhance TPRE’s market profile and add scale, but augments business diversification as SIIG has a larger global presence and has insurance operations in addition to its reinsurance platform.
TPRE’s balance sheet strength is expected to remain at a very strong level despite the acquisition of Sirius, which maintains a higher level of financial and underwriting leverage and a significant amount of safety reserves moderating the fungibility of capital. Risk-adjusted capital should benefit further as TPRE’s already reduced concentration in alternative investments will be a significantly smaller portion of total invested assets of the combined entity; AM Best expects that a significant majority share of investments will be composed of investment-grade, fixed-income securities and equities that will act as a portfolio ballast.
This transaction includes a significant ownership interest in TPRE by China Minsheng Investment Group Corp., Ltd. (CMIG), which is expected to acquire approximately a 35% stake in TPRE. CMIG has a significantly weaker credit quality than Third Point Re and has lacked transparency when dealing with AM Best. The risk involved with CMIG ownership is moderated by its limited voting control, which will be less than 10% of the voting shares. CMIG currently owns 96% of Sirius.
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