MEXICO CITY--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Active Capital Reinsurance, Ltd. (AC Re) (Barbados). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect AC Re’s balance sheet strength, which AM Best categorizes as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The ratings reflect AC Re’s balance sheet strength underpinned by risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), continued improvements in operating performance, adequate reinsurance program and 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.
AC Re is a Barbados-based reinsurer established in 2007. The company operates mainly in the Latin America market, with net premiums written composed of affinity (81%), surety (12%) and property/casualty (7%) as of 2018. The company has a diversified geographic footprint in Central, South America, Mexico, and Europe 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 maintained AC Re’s risk-adjusted capitalization at the strongest level. The company’s expansion strategy has been reinforced adequately by 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 a net premiums written to surplus of 0.83x. Nevertheless, the ratings could be susceptible to uncertainty over future underwriting performance, as the company expands its business into new geographic markets.
In 2018, while expanding into new geographies, AC Re continued to improve positive bottom-line results through reduced claims expenses and continued operating efficiencies, and despite higher acquisition expenses derived from its affinity line of business, AC Re generated a return on earned premium and return on equity of 19.8% and 17.5%, respectively.
The continuous improvement in AC 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 strengthen its capital adequacy position and successfully continues to grow with good operating performance. Conversely, negative rating actions could result from deterioration in risk-adjusted capital due to an aggressive dividend policy or a sharp deterioration in underwriting principles, or from negative operating performance that renders the strategy and BCAR model scores non-supportive of the ratings.
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