AM Best affirms A rating for Brit Reinsurance
AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent) of Brit Reinsurance (Bermuda) Limited. The outlook is stable.
The ratings reflect Brit Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
The ratings also benefit from the implicit and explicit support of its intermediate parent, Brit Limited, and its ultimate parent, Fairfax Financial Holdings Limited.
Brit Re, first incorporated in Gibraltar in 2007 and redomiciled to Bermuda in November 2017, acts primarily as an internal reinsurer for its affiliates, Syndicate 2987 and Brit Underwriting Limited.
Recently, Brit Re began writing casualty treaty reinsurance, as well as fronting for its affiliate’s insurance-linked securities platform, Sussex Capital. The company continues to derive most of its premium from a quota share contract with Syndicate 2987.
Brit Re’s very strong balance sheet strength is supported by historically profitable underwriting results and manageable premium growth. Liquidity measures are sound and supported by short-term, liquid holdings, predominantly high-quality fixed-income securities and cash.
While the company’s risk-adjusted capitalisation is maintained consistently at the strongest level, as measured by Best’s Capital Adequacy Ratio, the overall balance-sheet assessment of very strong also considers Brit Re’s material catastrophe exposure and the limited fungibility of its invested assets.
A significant portion of Brit Re’s assets is pledged as collateral for a stop-loss contract written to provide Funds at Lloyd’s for Brit. The very strong balance-sheet assessment also reflects that capital growth is constrained by occasionally sizeable dividend payments made to Brit Re’s publicly traded ultimate parent, Fairfax.
AM Best assesses Brit Re’s operating performance as adequate, largely based on the performance of its all-lines quota share on business written by Brit’s Syndicate 2987, of which Brit Re assumes a 20 per cent share of net premiums written.
The syndicate has obtained successive rate improvements over the past few years. However, large catastrophe losses and competition on its commercial reinsurance have dampened recent results.
The variability of the results of the syndicate business has been offset by the profitability of the FAL stop-loss contract.
Underwriting performance also benefits from Brit Re’s very low expense structure. Total investment returns have been variable over the past five years, with unrealised gains and losses having an impact on the company’s longer-term, value-oriented equity portfolio.
In 2020, underwriting results were affected negatively by pandemic losses and natural catastrophe events, although the company still generated a modest net profit for the year.
AM Best assesses Brit Re’s business profile as limited given the company’s concentrated business production, and the company’s ERM practices as appropriate owing to the governance structure in place.
The company benefits from being part of Fairfax, which maintains favourable financial flexibility, a strong liquidity position and a track record of supporting its (re)insurance subsidiaries.
Therefore, rating enhancement is provided based on the implicit and explicit support Brit Re receives from its parent in the form of capital support, business distribution channels and overall operational integration.