3 April 2014Analysis

Cayman-based captive receives rating downgrade

Risk Reinsurance, the captive of Transpower New Zealand, the state-owned operator of the country’s electricity grid, has had its financial strength rating downgraded from A+ to A by AM Best.

Citing high event retentions relative to the captive’s capital target, AM Best said that this could lead to significant fluctuations in its risk-adjusted capitalisation.

AM Best said that the captive’s position had been weakened following a NZ$50 million dividend payment to its parent.

The rating agency commended the “excellent balance sheet strength and capital generation ability” of Risk Reinsurance and the parent company’s risk management capabilities and capital generation ability.

AM Best said that a positive development for the ratings was unlikely, but that further negative developments could result if capital targets are further reduced by event retentions.