KBRA Affirms Ratings for Converge RE II and Converge Holdings LLC
19 Sep 2025 | New York
KBRA affirms the A- Insurance Financial Strength Rating (IFSR) for Converge RE II and the BBB- Issuer Rating for Converge Holdings LLC. The Outlook for both ratings is Stable.
Key Credit Considerations
The ratings reflect Converge RE’s strong and consistent support from its ultimate shareholder, which has contributed a total of $97.7 million in paid-in capital since inception. The company also benefits from a secured promissory note that serves as reliable contingent capital; as of December 31, 2024, $42.4 million remained available, a meaningful undrawn balance relative to the company’s size and business plan. KBRA observes that all prior draws have been funded in full and on time. The balance sheet continues to gain scale, with growth driven by increasing reinsurance liabilities and new cedant relationships. Internal capital generation remains modest relative to business expansion. Converge RE is progressing well on its LDTI conversion within its ERM framework, which is viewed positively, though execution risk remains.
Balancing these strengths are moderately elevated promissory note leverage relative to its current rating level, as well as cedant concentration with the top three counterparties representing about 60% of reserves. High-risk asset leverage remains elevated relative to benchmarks. Exposure to spread compression in a declining interest rate environment may pose additional risk of earnings and capital volatility. Finally, Puerto Rico’s solvency regime does not use a risk-based capital formula, although KBRA’s stress testing supports the company’s capital adequacy at the current rating level.
Rating Sensitivities
Demonstrated capital growth in line with business expansion, stronger internal capital generation and profitability, reduced reliance on the shareholder promissory note, lower high-risk asset leverage, and greater diversification of both capital sources and cedant relationships could result in positive rating action.
Reduced or delayed shareholder support, continued spread compression, the loss of key management without a suitable replacement, increased reliance on contingent capital, higher exposure to high-risk assets, or significant real estate valuation losses that materially weaken earnings or capital could result in negative rating action.
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