Published July 30, 2013
BOSTON – Insurance rating group A.M. Best said on Tuesday that it is placing SAC Re, the reinsurance arm linked to hedge fund SAC Capital Advisors, on review with negative implications less than a week after the fund was hit with criminal insider trading charges.
"Presently, there is uncertainty as to whether the invested assets can be managed by SAC Capital as well as whether there will be ramifications concerning any affiliation with SAC Capital on the reinsurance franchise going forward," the company said in a statement.
A.M. Best said it wants to review an updated business plan, which would include information about who will manage the reinsurer's assets.
In the five days since the U.S. government brought criminal fraud charges against Steven A. Cohen's hedge fund SAC Capital Advisor, much attention has been paid to the potential fallout for investors in the fund, including the reinsurer.
Industry analysts have speculated that if A.M. Best were to cut its rating of SAC Re, which had $567.8 million in assets at the end of 2012, in the wake of the criminal charges, people may shy away from doing business with the insurer.
Even though SAC Re, based in Bermuda, is neither a subsidiary or a unit of the $14 billion hedge fund, A.M. Best said there is reputational risk because the two share the same name. A handful of hedge fund managers including David Einhorn and Daniel Loeb have reinsurance units, which can offer stable, long-term capital.
"Rating downgrades could occur if SAC Re cannot separate itself from reputational risk, the business plan is not executed over the long term or key management is not retained," A.M. Best said in a statement.
It did not give an exact time frame for when it might take a decision.
A year ago, when SAC became the latest hedge fund to get into the reinsurance business, A.M. Best awarded a rating of A- (Excellent) and issuer credit rating of "a-".
At the time SAC said that it would be investing the reinsurer's assets.
(Reporting by Svea Herbst-Bayliss; Editing by Gary Hill, Bernard Orr)