AM Best has upgraded the Financial Strength Rating to A (Excellent) from A- (Excellent) and the Long-Term Issuer Credit Rating to “a” (Excellent) from “a-” (Excellent) of Active Capital Reinsurance, Ltd. (Active Re) (Barbados). The outlook of these Credit Ratings (ratings) has been revised to stable from positive.
The ratings reflect Active Re’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The stable outlooks are based on the company’s capability to maintain a sound operating performance driven by consistent underwriting practices and a solid capital structure.
Active Re’s rating upgrades are due to its stable profitability metrics, supported by a keen underwriting strategy with constant adaptation to the economic environment and strong operating performance that compares favorably with its peers.
The company’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 supportive 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 property/casualty (41%), surety (18%) and affinity (41%), as of year-end 2022. 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 continues to adapt to the current economic environment by innovating its internal processes resulting in a better decision-making.
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 ratio of 1.2x. Nevertheless, Active Re’s ratings could be susceptible to uncertainty over future underwriting performance, as the company expands its business into new geographic markets, automatic contracts and managing general agents.
While expanding its book of business in 2022, Active Re maintained 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. The loss ratio has also improved against 2021 due to the higher retention of profitable business. As of June 2023, the company continues to report strong underwriting metrics in line with the performance of 2022.
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 are not foreseen in the medium term; however, they could occur if the company continues to strengthen its geographical profitability with positive effect in its balance sheet. Negative rating actions could result from deterioration in risk-adjusted capital due to major capital outflows.
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