Ratings of residual value insurer RVI affirmed by AM Best
AM Best has affirmed the Financial Strength Rating of A- (Excellent) of RVI Guaranty (Bermuda) and its subsidiary, RVI America Insurance Company (Delaware) (collectively known as RVI). The outlook of the (rating is stable.
The ratings reflect RVI’s balance sheet strength, which AM Best said it assesses as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
RVI’s risk-adjusted capitalization level, financial flexibility, high credit quality investment portfolio and adequate liquidity position support AM Best’s balance sheet strength assessment of strongest. AM Best assesses RVI’s risk-adjusted capitalization at the strongest level on base and stress scenarios, as measured by Best’s Capital Adequacy Ratio (BCAR).
AM Best assesses RVI’s operating performance as adequate. The company has stable long-term earnings, along with historically low loss ratios, high expense ratios and combined ratios well-below 100%. The low loss ratios and high expense ratios are not unexpected for the residual value insurance products in which RVI was historically concentrated. As RVI expands into more traditional property/casualty lines of business, the loss ratios may rise naturally as the expense ratio falls. RVI has average annual earnings of $11.3 million over the past five years, and a five-year average combined ratio of 75.8%.
RVI achieved these operating results while also growing its premium volume. RVI’s net premium written increased by approximately 37% in 2022 and approximately 14% in 2021. RVI’s entrance into traditional property/casualty reinsurance drove the premium increase in 2022. Passenger vehicle residual value insurance in China drove the increase in premium volume in 2021.
High product risk drives RVI’s limited business profile assessment. The company’s product risk associated with its residual value insurance segments is correlated highly with the broader macro-economy. Also, low-frequency and high-severity claims typically characterize the risk profile of RVI’s residual value insurance segments. However, RVI’s business profile benefits from a leading market position, little competition in the residual value insurance sector and high client retention rate. Historically, RVI was concentrated narrowly in residual value insurance product lines; however, in recent years, RVI is expanding opportunistically into new lines of business that may provide beneficial diversification in the future.
