Best’s News & Research Service - July 20, 2022 04:04 PM (EDT)
AM Best Removes From Under Review With Negative Implications, Affirms Credit Ratings of R&Q Insurance Hldgs Ltd. and Rated Subs
- July 20, 2022 04:04 PM (EDT)
London //BestWire// - AM Best has removed from under review with negative implications and affirmed the Financial Strength Ratings of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) of Accredited Surety and Casualty Company, Inc. (ASC) (Orlando, FL), Accredited Specialty Insurance Company (ASI) (Phoenix, AZ) and Accredited Insurance (Europe) Limited (AIEL) (Malta). Concurrently, AM Best has affirmed the Long-Term ICR of “bbb-” (Good) of R&Q Insurance Holdings Ltd. (R&Q) (Bermuda) [AIM: RQIH]. The outlook assigned to these Credit Ratings (ratings) is stable. ASC, ASI and AIEL are wholly owned subsidiaries of R&Q.
In AM Best’s view, ASC, ASI and AIEL are strategically important to and integrated within the R&Q group. These companies are pivotal to the group’s growing programme management business, providing insurance services to managing general agents (MGAs). In addition, they hold licences essential for the group’s core operations of programme and legacy business in the United States and Europe.
The ratings of ASC, ASI and AIEL reflect the consolidated balance sheet strength of R&Q, which AM Best assesses as very strong, as well as R&Q’s adequate operating performance, neutral business profile and appropriate enterprise risk management. The rating of R&Q as a non-operating insurance holding company is determined by reference to the credit assessment of R&Q on a consolidated basis and the normal subordination of holding company creditors to operating company policyholders.
The ratings have been removed from under review with negative implications following the successful execution of the group’s fundraise in July 2022. R&Q raised total proceeds of USD 129.5 million, restoring its capital base after reporting a loss on an IFRS basis of USD 127.4 million in 2021.
R&Q’s consolidated risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), remained at the strongest level at year-end 2021 and is expected to remain at least at the very strong level over the medium term. R&Q’s relatively conservative investment strategy and track record of largely favourable reserve development are viewed as positive factors in the balance sheet strength assessment. R&Q’s high dependence on reinsurance and historical volatility in risk-adjusted capitalisation are offsetting factors.
R&Q reported a significant IFRS loss after tax in 2021, equivalent to a return-on-equity ratio (ROE) of almost -30%, primarily driven by a pre-tax, non-cash USD 90 million impairment of an asset relating to a structured reinsurance contract, which was commuted. This is considered a non-recurring, exceptional item. The adequate operating performance assessment reflects a track record of generally profitable but volatile results prior to 2021, demonstrated by a five-year weighted average ROE of 9.5% for the period ending in 2020. The group’s recent initiatives, including the formation and launch of its reinsurance sidecar and the growth of its programme management business, are expected to result in fee income generating a larger portion of earnings and reducing volatility over the short-to-medium term, although execution risk exists.
R&Q’s neutral business profile assessment reflects a good competitive position as a specialist in the small- to medium-sized run-off market and a growing presence in the programme management market. The formation and launch of reinsurance sidecar, Gibson Re, in 2021 has given the group access to USD 300 million of third-party committed capital to support the growth of its legacy business over a three-year underwriting period. A failure to secure further financing following Gibson Re’s three-year underwriting period and/or poor underwriting performance of the MGAs within the programme management business, could adversely impact R&Q’s business profile and earnings.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all 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. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising 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.