A.M. Best Affirms Issuer Credit Rating of Maiden Re – ARI Reinsurance Trust Agreement

A.M. Best Co. has affirmed the issuer credit rating (ICR) of “aa” of the Maiden Re – ARI Reinsurance Trust Agreement (trust) dated January 1, 2010, between Maiden Reinsurance Company (Maiden Re), a corporation organized under the laws of the State of Missouri (the Grantor), ARI Mutual Insurance Company and ARI Casualty Company (collectively known as ARI, the beneficiary), both corporations organized under the laws of the State of New Jersey and State Street Bank and Trust Company, a Massachusetts trust company (the trustee). The outlook for the rating is stable.

The trust collateralizes liabilities assumed by Maiden Re from ARI. Maiden Re and ARI are wholly responsible for determining the liabilities (the collateral base), which consist of case loss reserves, incurred but not reported losses (IBNR) and unearned premiums, net of open balances. As of December 2011, the collateral base of the trust—which represents the amount ARI expects in the trust to secure payments under various reinsurance agreements with Maiden Re—was $17.6 million.

As of December 31, 2011, the trust contains investment assets (as reported by the trustee) with total market value greater than or equal to the necessary collateral—an amount determined by dividing the collateral base by a factor (the advance rate) provided by A.M. Best. As long as the market value of the trust assets is greater than or equal to the necessary collateral, the trust will maintain its ICR of “aa”. The necessary collateral may change from time to time depending on (1) the revision of the collateral base as determined by Maiden Re and ARI and (2) adjustments to the advance rate for the securities in the trust.

A.M. Best’s rating of the trust considers (1) an evaluation of specific risks, such as market and operational risks, which may affect the value of the assets in the trust; (2) whether the amount in the trust will be sufficient to meet Maiden Re’s obligation to pay an amount equal to the collateral base; (3) the duration of the investment asset in the trust; and (4) the uncertainty surrounding the treatment of the trust’s assets in the event of Maiden Re’s impairment or insolvency. A.M. Best is not responsible for (a) determining the adequacy of the collateral base; (b) any errors or miscalculations of the collateral base; or (c) whether the collateral base accurately reflects the current liabilities under the various reinsurance agreements between ARI and Maiden Re.

Events that could cause negative rating actions include: (1) failure of Maiden Re to remedy the shortfall if adverse market conditions occur, which cause the value of the assets in the trust to fall below the necessary collateral amount and (2) trust assets that deviate from investment guidelines, which restrict/limit the type of investments that can be deposited in the trust.

The analytics of the rating addresses “tail risk”—the risk that the value of the trust’s assets falls below the collateral base within a given confidence interval.

For access to special reports, analytical methodologies and transactions relating to insurance-linked securities, please visit http://www3.ambest.com/sfc/.

The principal methodology used in determining this rating is “Assessing the Tail Risk of Sidecars”, which provides the general framework and guidance regarding the rating criteria and analytics.

Additional key criteria utilized include: Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Methodologies can be found at http://www.ambest.com/ratings/methodology.