12 December 2022News

AM Best affirms Brit Re ratings

AM Best has affirmed the financial strength rating of A and the long-term Issuer credit rating of “a” of Brit Reinsurance. The outlook of these credit ratings is stable.

The ratings reflect Brit Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). The ratings also benefit from the implicit and explicit support of its intermediate parent, Brit, and its ultimate parent, Fairfax Financial Holdings.

Brit Re, first incorporated in Gibraltar in 2007 and re-domiciled to Bermuda in 2017, acts primarily as an internal reinsurer for its affiliates, Lloyd’s Syndicate 2987 and Brit UW. More recently, Brit Re began writing casualty treaty reinsurance, as well as fronting for its affiliate’s insurance-linked securities platform, Sussex Capital. The company continues to derive most of its premium from a quota share contract with Syndicate 2987.

AM Best said that Brit Re’s very strong balance sheet strength is supported by historically profitable underwriting results and manageable premium growth, which has derived mostly from premium rate increases. Liquidity measures are sound and supported by short-term, liquid holdings, predominantly high-quality fixed income securities and cash.

While the company’s risk-adjusted capitalisation is maintained consistently at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), the overall balance sheet assessment of very strong also considers Brit Re’s material catastrophe exposure and the limited fungibility of its invested assets. A significant portion of Brit Re’s assets is pledged as collateral for a stop-loss contract written to provide Funds at Lloyd’s (FAL) for Brit. The very strong balance sheet assessment also reflects that capital growth is constrained by occasionally sizable dividend payments made by Brit Re to its intermediate parent within the Fairfax group.

AM Best assesses Brit Re’s operating performance as adequate, largely based on the performance of its all-lines quota share on business written by Syndicate 2987, of which Brit Re assumes a 20% share of net premiums written. The syndicate has obtained successive rate improvements over the past few years; however, major catastrophe losses impacting its property (re)insurance portfolios have dampened recent results. The variability of the results of the syndicate business has been offset by the profitability of the FAL stop-loss contract. Underwriting performance also benefits from Brit Re’s very low expense structure. Total investment returns have been variable over the past five years, with unrealised gains and losses impacting the company’s longer-term, value-oriented equity portfolio. In 2021, underwriting results were favourably helped by premium rate increase, lower attritional losses from the whole account quota share with Syndicate 2987, and strong performance from the common stock portfolio. In the first nine months of 2022, Brit Re’s results were in line with management’s expectation and the company recorded an underwriting profit in the period.

AM Best also assesses Brit Re’s business profile as limited given the company’s concentrated business production, and the company’s ERM practices as appropriate due to the governance structure in place.