OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of RoyalStar Assurance Ltd. (RSA) (Nassau, Bahamas). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect RSA’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
RSA’s balance sheet strength assessment continues to be supported by its strongest risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), strategically conservative investment portfolio and comprehensive reinsurance program. These strengths are offset partially by RSA’s exposure to weather-related catastrophic events, given its geographic concentration of business and investments in the Caribbean, and its high reliance on reinsurance to protect surplus from catastrophic events.
RSA’s strong operating performance continued in 2022 with improved profitability and operating metrics versus 2021. RSA’s operating performance has benefited from a lack of catastrophic events since Dorian in 2019. Favorable reinsurance terms also contributed materially as investment and commission incomes derived from business ceded to reinsurers has become a significant portion of revenue. Profitability may be pressured over the near term as reinsurance capacity is limited across the Caribbean and insurers, including RSA, are incurring higher costs and lower commissions. However, it is likely that RSA will continue to maintain its relative performance, as opposed to its Caribbean peers, as all companies in the region are encountering the same challenges. Nevertheless, RSA and other Bahamas-domiciled insurance companies remain at risk of losing additional reinsurance capacity if the country cannot remove itself from the European Union and German lists of non-cooperative jurisdictions for tax purposes.
AM Best views RSA’s business profile as limited. The company provides personal and commercial lines coverages throughout the Bahamas, the Cayman Islands, the Turks and Caicos Islands, the U.S. Virgin Islands, the British Virgin Islands and Anguilla. Like many property/casualty insurers operating in the Caribbean, RSA cedes a significant portion of its written premiums to reinsurers under its reinsurance treaties. In addition, earnings remain subject to highly competitive, mature regional markets with limited potential for organic growth. RSA’s plans to actively expand its offerings outside the Bahamas have been on hold due to a lack of reinsurance capacity for new business.
AM Best continues to assess RSA’s ERM program as appropriate given its business risks. Reinsurance terms will be less favorable prospectively, but RSA’s program remains comprehensive. For 2023, RSA was able to secure sufficient reinsurance coverage despite reduced capacity in the region. The company has established processes in place to mitigate key identified risks and senior management is very active in risk taking decisions.
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