AM Best has affirmed the financial strength rating of B+ (Good) and the long-term issuer credit rating of “bbb-” (Good) of Bermudian-based Golden Tree Reinsurance Limited.

The outlook of the credit ratings is stable.

Golden Tree is a subsidiary of Iris Financial Services Limited and is owned ultimately by Springbrook Capital Ltd, a privately held holding company with diversified operations in insurance and financial services.

The ratings reflect Golden Tree’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.

Golden Tree was established initially in 2015 as a segregated portfolio company.

In 2019, the company was licensed as a Class 3A insurer under Bermuda laws to provide reinsurance capacity for commercial credit and credit life risks as part of the group’s retrocession cover, with geographic exposure to Colombia’s insurance market.

The ratings also reflect Golden Tree’s very strong balance sheet assessment, sound operating performance and its affiliation to Iris Financial, which provides synergies and operating efficiencies, as well as an appropriate ERM framework.

Offsetting these positive rating factors are the company’s concentration in one business line and the strong competitive environment in its target geographic market of Colombia.

Golden Tree’s very strong balance sheet is underpinned by capital base that was enhanced in 2021, in conjunction with the company’s strongest level of risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio.

The agency said Golden Tree’s capital base had strengthened over time as a result of its sound underwriting practices.

In 2021, the company continued to sustain profitability mainly through underwriting, enabling it to generate a return on equity of 39 per cent.

AM Best expects Golden Tree to continue having an important role in its group’s strategy while starting to provide reinsurance capacity to third-party commercial insurers.

This comes amid healthy growth prospects for the company and consistent profitability generated by new business from group´s recently launched proprietary managing general agent.

Investment income, driven by a diversified strategy, has continued to support Golden Tree’s results further. However, the company is not dependent on this revenue to achieve positive bottom-line results.

Factors that could lead to a rating upgrade for Golden Tree include sustained capital growth, increased business diversification and consistent operating performance, AM Best said.

Factors that could lead to negative rating action include a material loss of capital, either from a substantial decline in profitability, due to new business volatility or execution risk, or an aggressive dividend policy, which reduces risk-adjusted capitalisation to a level that no longer supports Golden Tree’s ratings.