AM Best has affirmed the credit ratings of Bermudian-based Argus Group Holdings Limited and its subsidiaries.

The ratings agency affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) of subsidiaries Argus Insurance Company Limited and Bermuda Life Insurance Company Limited.

Concurrently, AM Best has affirmed the long-term ICR of “bbb-” (Good) of Argus Group.

The outlook of these credit ratings is stable.

The ratings reflect Argus Group’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

Argus Group’s risk-adjusted capitalisation is at the strongest level, as measured by Best’s capital adequacy ratio, as of its March 31, 2022, fiscal year-end, which is in line with fiscal years 2020 and 2021.

AM Best said some BCAR volatility was expected over the near term as unrealised investment losses pressured International Financial Reporting Standard’s reported equity. However, Argus Group maintains sufficient liquidity to hold these investments to maturity and is expected to maintain its balance sheet assessment over the medium term.

Supporting the strongest BCAR assessment at the group level is strong regulatory capital in both operating entities, a much more diversified asset portfolio and a comprehensive reinsurance programme. While publicly traded, access to public equity markets is limited because the Bermudian stock exchange is thinly traded.

However, Argus Group maintains bank lines and cash reserves to increase financial flexibility and ensure that the asset portfolio does not need to be divested to meet policyholder obligations.

Operating results in fiscal-year 2022 were favourable to the prior year due to growth in fee income and annuity reserve releases driven by higher interest rates.

Operating favourability continued through the first six-months of fiscal-year 2023 as higher interest rates continued to drive annuity reserve releases positively impacting net income.

Core operating profit in interim 2023 was slightly behind fiscal-year 2022 as medical utilisation continues to rebound from Covid-19 driven lows, but ahead of projections based on better-than-expected underwriting results.

Argus Group also successfully generated moderate premium growth in fiscal-year 2022 and the first half of fiscal-year 2023, which reverses a trend of declining premiums over the prior two-year period.

Generating net premium growth has been a challenge for the company recently, especially within Bermuda due to health reform on the island, AM Best said.

Management has been expanding the company’s fee-based businesses to generate revenue growth and diversify income sources. This diversification strategy has been largely successful as fees have grown to more than 30 per cent of total revenue from only 20 per cent in 2018.

The ratings agency said health reform policy changes remained a high priority for the Bermudian government entering 2023; however, the initially planned second phase of the previous health reform plan had been dropped in favour of a broader health reform strategy.

The new strategy has universal coverage as its primary policy goal but appears open to a much more collaborative approach with private industry than the original 2019 plan.

While material changes to the health system in Bermuda could place pressure on the company’s ratings, Argus Group still maintains its strong position as a provider of employee benefits and operates as a leading provider of property, auto and employer’s liability insurance.

Argus Group’s acquisition of provider practices and development of medical management capabilities partially mitigate the risks of material disintermediation as part of a new healthcare environment on the island by providing additional services to the sector.

AM Best acknowledges Argus Group’s drive to expand and diversify premium and earnings. Over the past few years, geographic diversification has increased through its property/casualty segment’s growing presence in Malta and Gibraltar, as well as from the acquisition of the provider practices.