FOR IMMEDIATE RELEASE
MEXICO CITY – JULY 08, 2021 04:22 PM (EDT)
has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Active Capital Reinsurance, Ltd. (Active Re) (Barbados).
The Credit Ratings (ratings) reflect Active Re’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The revision of the outlooks to positive reflects AM Best’s favorable view over Active Re’s operating performance, amid its continuous global expansion, supported by consistent sound underwriting practices comparing strongly with competitors despite a challenging operating environment driven by the COVID-19 pandemic.
Active Re’s balance sheet strength is underpinned by its risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The ratings also reflect Active Re’s adequate reinsurance program and a supporting risk management framework for its risk profile. An offsetting rating factor is the strong competitive environment in its target geographic markets, which the company faces through its global expansion.
Active Re is a Barbados-based reinsurer established in 2007. The company operates with net premiums written (NPW) composed of affinity (46%), property/casualty (44%) and surety (10%), as of 2020. The company has a diversified geographic footprint in Latin America, the Middle East, Europe and Asia Pacific, and focuses its underwriting efforts on short-term non-catastrophe risks.
The company’s capital base, consistently grown through reinvestment of earnings and capital contributions, has helped maintain Active Re’s risk-adjusted capitalization at the strongest level. The company’s
expansion strategy continues to be reinforced adequately through consistent improvements to its reinsurance program, placed among a diversified group of reinsurers with good security levels, consequently minimizing counterparty credit risk exposures. Moreover, the company is characterized by a conservative underwriting leverage as reflected by an NPW to surplus of 0.98x. Nevertheless, Active Re’s ratings could be susceptible to uncertainty over future underwriting performance, as the company expands its business into new geographic markets.
In 2020, while expanding into new geographies, Active Re continued to maintain its bottom-line results through contained acquisition expenses derived from its affinity line of business and continued operating efficiencies, enabled for the most part by managing general agents. Despite increased claims expenses mainly triggered by catastrophe events in the Middle East and the impact of the COVID-19 pandemic in Latin America, AC Re has continued to maintain profitability as reflected by a return on earned premium and return on equity of 19% and 21%, respectively.
The continuous improvement in Active Re’s ERM framework has allowed the company to better identify and manage its risks. As a result, related party transactions continue to be reduced significantly, improving its financial flexibility.
Positive rating actions could occur if the company continues to enhance its operating performance. Conversely, negative rating actions could result from deterioration in Active Re’s risk-adjusted capital due to an aggressive dividend policy or deterioration in underwriting principles.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of AM Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology
Key insurance criteria reports utilized:
- Available Capital & Holding Company Analysis (Version Oct. 13, 2017)
- Catastrophe Analysis in A.M. Best Ratings (Version Oct. 13, 2017)
- Evaluating Country Risk (Version Oct. 13, 2017)
- Scoring and Assessing Innovation (Version March 5, 2020)
- Understanding Universal BCAR (Version March 11, 2021)
View a general description of the policies and procedures
used to determine credit ratings. For information on the meaning of ratings, structure, voting and the committee process for determining the ratings and monitoring activities, please refer to Guide to Best’s Credit Ratings
- Previous Rating Date: July 2, 2020
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- Date Range of Financial Data Used: Dec. 31, 2016- Dec. 31, 2020