AM Best cuts SanlamAllianz Re's financial strength rating to B++ from A-

AM Best's Oct. 2 notice cut SanlamAllianz Re Ltd's financial strength rating to B++ from A- and its long-term issuer credit rating to bbb+ from a-, moving both out of the agency's Excellent band into Good without stating what prompted the action.

For a cedent, the two ratings crossing the same boundary in one notice is the event: the financial strength rating is the number tested against counterparty and collateral rules, and the line between Excellent and Good is where many security clauses draw their threshold, with a B++ sitting beneath it. Whether any of SanlamAllianz Re's counterparties carry rating-linked terms that now tighten, and what those terms require, is not addressed in the notice, nor is the size of the book the ratings attach to.

The issuer credit rating answers a different question, the standing of the entity's own obligations, and it crossed the same boundary in the same action, while the review status moved to developing implications. That status commits AM Best to no direction, so the next move could be up or down, and the notice does not say what opened the review, when it was opened, or whether the downgrade and the review are one event or two; the resolution, and the reason attached to it, is what a counterparty with a rating-linked clause will be reading.

The name on the notice joins Sanlam and Allianz, two of the larger insurance groups, but the notice does not describe the ownership or the capital structure behind the reinsurer, nor does it tie the downgrade to any corporate transaction.

PWD has argued that reinsurance's ratings skew, a run of upgrades into a soft market, is the market pricing its own softness. One downgrade at one agency on one balance sheet does not test that argument, and a single boundary crossing does not either. The count does. If this cycle produces more of them, the upgrade tally stops being the whole picture, and the next AM Best action on SanlamAllianz Re will show whether the downgrade is one balance sheet's problem or the first entry in that count.