MEXICO CITY--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Active Capital Reinsurance, Ltd. (Active Re) (Barbados). The outlook of these Credit Ratings (ratings) is positive.
The ratings reflect Active Re’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The positive outlooks are maintained based on sound operating performance driven by consistent underwriting practices that have maintained profitable results. AM Best has a favorable view of Active Re’s steady improvement of its operating performance amid its continuous global expansion, supported by consistent sound underwriting practices comparing strongly with competitors despite a challenging operating environment driven by the COVID-19 pandemic.
Active Re’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 a supporting 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 (49%), surety (26%) and affinity (25%), as of 2021. 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’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 0.99x. 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.
In 2021, while orderly expanding its book of business, 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. Despite increased claims expenses mainly triggered by the impact of the COVID-19 pandemic for the first quarter, Active Re has continued to maintain profitability as reflected by a return on earned premium and return on equity of 25% and 29%, respectively.
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 could occur if the company continues to enhance its operating performance with metrics that are consistent with the strong assessment, according to AM Best. Negative rating actions could result from deterioration in risk-adjusted capital due to major capital outflows.
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