Rating agency AM Best has placed Bermuda-based RenaissanceRe Holdings Ltd and its affiliates under review with negative implications, citing moves into casualty business and away from their “core competency of property catastrophe reinsurance”.

Best has also placed another Bermuda-based company, Platinum Underwriters Holdings, Ltd and its subsidiaries, under review — in their case “with developing implications”.

The companies announced on Monday that they had entered into a definitive merger agreement under which Renaissance would acquire Platinum.

In the case of RenRe, whose ratings include a financial strength rating of A+ (Superior) and the issuer credit ratings of ‘aa-’ the ‘under review’ status would be removed on the closure of the deal, AM Best stated.

“The under review status is based on the recent announcement that RenaissanceRe has entered into a definitive agreement to purchase Platinum Underwriters Holdings Ltd. (Platinum) (Bermuda). This transaction would give RenaissanceRe additional scale and help broaden its product offering.

“However, this transaction also represents a significant commitment on the part of RenaissanceRe to continue its move into casualty business, which is outside of the organisation’s core competency of property catastrophe reinsurance.”

Best said the ‘under review’ status will be removed once the deal closes and it completes its analysis.

“Factors that could result in negative rating actions include weakened risk-adjusted capitalisation levels as a result of the acquisition, the perception that prospective operating results will be below that of the organisation’s historical run rate, the lack of retention of key personnel or details of the transaction that are not known to AM Best at this time.”

The agency added that factors that could lead to rating affirmations included “strong risk-adjusted capital levels coupled with a well-thought out business plan that demonstrates strong and stable operating performances throughout the organisation going forward. In addition, AM Best is interested in understanding the tactical execution of the business plan as it relates to the combined organisation.”

In the case of Platinum, Best said: “The ratings will remain under review pending the completion of the transaction and AM Best’s continuing discussions with management relative to the future plans for the Platinum legal entities.”

Currently, Platinum’s ratings include a financial strength rating of A (Excellent) and issuer credit ratings of ‘a’.

Best had also stated that the ‘under review with developing implications status’ “reflects the limited information available regarding the transaction and the uncertainty around RenaissanceRe’s future plans for Platinum. Additionally, there is some concern with the retention of key personnel at Platinum to underwrite the business, which AM Best considers important as RenaissanceRe has limited experience in casualty business, due to its focus on property catastrophe reinsurance.”

In addition, Best has also placed yet another Bermuda-based entity, Top Layer Reinsurance Ltd, under review, in their case with negative implications.

Top Layer’s ratings include a financial strength rating of A+ (Superior) and the issuer credit rating of ‘aa-’.

The agency explained: “The ratings have historically reflected the substantial amount of support Top Layer receives from its co-owners, State Farm Mutual Automobile Insurance Company (State Farm) and Renaissance Reinsurance Ltd.”

The under review status is based on RenRe’s agreement to buy Platinum and the increase in casualty business.