OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has upgraded the issuer credit rating (ICR) to “a+” from “a” and affirmed the financial strength rating of A (Excellent) of Scotia Insurance (Barbados) Limited (Scotia Re) (Barbados). The outlook for both ratings is stable.
Scotia Re is primarily a life reinsurer that is ultimately owned by The Bank of Nova Scotia (Scotiabank). Scotia Re principally reinsures credit insurance policies underwritten by third-party life insurance carriers on consumer loans originated by Canadian, Latin American and Caribbean retail branches of Scotiabank. Scotia Re retrocedes the Canadian risks to unaffiliated reinsurers and accepts similar non-Canadian risks from those unaffiliated reinsurers. Scotia Re also participates at a modest exposure level in several property catastrophe insurance contracts.
The ICR upgrade considers Scotia Re’s consistent growth in premiums and earnings, its solid risk-adjusted capitalization, the geographic diversification of the company’s insurance risks and liquid investment portfolio. The investment portfolio is largely made up of current and short-term deposits with related parties. Given the geographic diversification of Scotiabank, A.M. Best believes that Scotia Re is well positioned to profitably grow premium volume over the long term. The stability of the Canadian banking sector and Scotia Re during the recent financial crisis demonstrated the strength of both the banking and insurance operations.
While recognizing the solid market position of the banking parent and Scotia Re’s consistency of profitable operations, A.M. Best notes that growth within the enterprise depends upon the rate of new loan originations. A.M. Best believes that while the banking and insurance operations have demonstrated resilience, potential future decreases in consumer loan activity in Canada can still adversely impact the associated opportunities to market credit insurance. The ratings also consider the challenges Scotia Re faces in balancing a high level of capitalization with alternative uses of capital at the parent company level.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding Universal BCAR”; and “Assessing Country Risk.” Methodologies can be found at www.ambest.com/ratings/methodology.
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