Press Release - NOVEMBER 02, 2016
A.M. Best Affirms Credit Ratings of Barents Re Reinsurance Company Inc.
FOR IMMEDIATE RELEASE
MEXICO CITY - NOVEMBER 02, 2016
The rating affirmation reflects the steady performance of the company in terms of risk-adjusted capitalization, profitability and increasing geographical diversification. The ratings also recognize the company’s good enterprise risk management (ERM) practices. Limiting the ratings is the still evolving regional composition of its portfolio and the uncertainty regarding its impact on the company’s level of profitability.
During 2015, Barents Re continued to reduce its business in Latin America and increased its participation in Europe while maintaining its premium volume. It also leveraged this shift with a diversified and comprehensive reinsurance program placed among reinsurers with a good level of security, a key characteristic Barents Re has adopted in order to prudently enter new business lines and regions. For 2015, this strategy enabled the company to achieve better underwriting results with a reduction on business retention and a better return on net premiums earned, standing at 49.3%, up from 44.7% in 2014. As of September 2016, this return on net premiums metric decreased to 38.5% as the company eliminated unwanted business in certain regions from its portfolio. In order to gain better access to the European market, Barents Re established a subsidiary in Luxembourg, which will cede most of its premium to its parent company.
Risk-adjusted capitalization for the company is very strong, as a result of large capitalization in previous years and good bottom line results in the past five years. Exposures are adequately covered by its reinsurance program and the net exposures of the company to catastrophe events does not represent a significant portion of its reported surplus, strengthening A.M. Best’s view of the company’s ERM practices, as it has been able to balance its risk appetite with its risk-bearing capabilities, which is also reflected in a conservative investment portfolio.
The ratings are limited by the uncertainty of future underwriting income in markets where the company has been expanding its operations in previous years and also plans to expand in the medium term.
The ratings are not expected to change in the medium term; however, positive rating actions could take place if the company adequately balances its regional business portfolio in order to achieve an incremental bottom line result in a sustained way and as the company continues to adequately match its risk appetite with its risk-bearing capabilities. Negative rating actions could occur if the regional shifting of the portfolio consistently produces negative results that affect the overall profitability of the company, reflecting in deterioration of its capital base, or if by any other means risk-adjusted capital becomes non-supportive of current ratings.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
View a general description of the policies and procedures used to determine credit ratings. For information on the meaning of ratings, structure, voting and the committee process for determining the ratings and monitoring activities, please refer to “Understanding Best’s Credit Ratings.”
This press release relates to rating(s) that have been published on A.M. Best’s website. For additional rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.
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