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FOR IMMEDIATE RELEASE
MEXICO CITY - DECEMBER 15, 2022 11:46 AM (EST)
AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Barents Re Reinsurance Company, Inc. (Barents Re) (Cayman Islands) and its affiliate, Barents Reinsurance S.A. (Barents Re Lux) (Luxembourg).
The Credit Ratings (ratings) reflect Barents 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.
The revised outlooks reflect the reversion of the negative trend in Barents Re’s operating performance metrics, as well as the improvement in the company’s corporate governance framework. While stability is expected, failure to execute strategic plans successfully is likely to result in negative rating actions.
The rating affirmations reflect Barents Re’s risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and geographical diversification. Limiting the ratings is the constantly shifting regional composition of Barents Re’s portfolio and the uncertainty regarding the impact on the company’s level of profitability.
The ratings of Barents Re Lux reflect its strategic importance to and the support it receives from Barents Re. Barents Re Lux is part of the Barents Re rating unit, and it is fundamental to the group’s overall strategy.
Barents Re provides a parental guarantee and reinsurance support to Barents Re Lux. The company is in the course of obtaining their U.K. branch license and is currently operating under the temporary permissions regime until the end of 2023. Failure to obtain the U.K. branch license would put operational pressure on the company.
Barents Re’s business portfolio in 2021 contracted year over year by 17.4%, mainly driven by a premium reduction in specialty lines, albeit partially offset by growth in Barents Re’s other business lines. Overall, Europe-sourced business represents 87% of its portfolio, with Latin America region generating 7% and the Middle East and North Africa region holding the rest. The company is supported by its diversified and comprehensive reinsurance program placed among reinsurers with a good level of security, a key characteristic that Barents Re has adopted to enter new business lines and regions prudently.
Although operating performance have shifted over time toward a different structure, Barents Re’s current metrics still compare favorably with the market. As of June 2022, the company presented a positive bottom-line result of USD 19.9 million, showing resilience to the current market conditions. Although there is volatility present in the company’s premium volume and the composition of the business portfolio, Barents Re has been able to produce consistently positive operating earnings across multiple underwriting cycles.
Barents Re’s risk-adjusted capitalization still reflects capital contributions in 2016 and 2017, along with positive bottom-line results in the past years. The company’s reinsurance program adequately covers exposures, and its net exposures to catastrophe events do not represent a significant portion of its reported surplus.
Positive rating actions are not expected in the medium term. Factors that could lead to negative rating actions are the deterioration in the expected performance of the company in terms of profitability and capital generation. Negative rating actions could also occur as a result of a breakdown in its corporate governance due to regulatory issues or a breach in controlling its operational risks.
The methodology used in determining these ratings is Best’s Credit Rating Methodology (Version Nov. 13, 2020), which provides a comprehensive explanation of AM 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 Guide to Best’s Credit Ratings.
This press release relates to rating(s) that have been published on AM 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 AM Best’s Recent Rating Activity web page.
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AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.