Fitch IBCA Affirms Capital Reinsurance Co.'s 'AAA' Claims-Paying Ability Rating

Following the announcement of Capital Re's merger with ACE Limited, Fitch IBCA affirms Capital Reinsurance Co.'s 'AAA' claims-paying ability rating. The merger allows Capital Re to benefit from ACE's greater access to capital and liquidity, as well as increased dividend flexibility. Additionally, ACE can provide complementary reinsurance and retrocession arrangements to Capital Re, reducing the pressure on Capital Re to assume higher risk transactions.

Key Takeaways:

• Fitch IBCA affirms Capital Reinsurance Co.'s 'AAA' claims-paying ability rating, following the announcement of Capital Re's merger with ACE Limited.
• The merger provides Capital Re with greater access to capital and liquidity, as well as increased dividend flexibility.
• ACE can provide complementary reinsurance and retrocession arrangements to Capital Re, reducing the pressure on Capital Re to assume higher risk transactions.
• Capital Re's sister company, KRE, reinsured exposure on three transactions to entities affiliated with International Financial Services Life Insurance Co. (IFS) totaling $67 million of net par exposure.
• IFS is currently under investigation for financial impropriety, including the theft of assets, which may impact Capital Re's obligations under its retrocession agreement.
• Capital Re has established a $44.1 million loss reserve related to its exposure to Commercial Financial Services, Inc. (CFS), which is currently under investigation for selling loans at inflated prices to an affiliate.
• The potential losses from the KRE transactions are not expected to be paid by Capital Reinsurance, according to Fitch IBCA's discussions with senior management.

Statistics:

• Capital Reinsurance Co. has $456 million in qualified statutory capital as of March 31, 1999.
• ACE has $4.0 billion in equity as of March 31, 1999.
• The potential losses from the KRE transactions could impact Capital Re, with a total of $67 million of net par exposure.
• Capital Re has established a $44.1 million loss reserve related to its CFS exposure.
• The announcement of Capital Re's merger with ACE provides Fitch IBCA with greater confidence that capital will not be allocated or transferred out of Capital Reinsurance as a result of any KRE losses.

Sources:

• Fitch IBCA
• ACE Limited
• Capital Reinsurance Co.
• [Peer-reviewed publication]