Am Best has removed IRB Brasil Re’s ‘under review with negative implications’ status following improvements in the company’s enterprise risk management (ERM) and underwriting practices.
The rating agency also affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of IRB, although the outlook of these ratings remains negative.
These reflect IRB’s operating performance, which has recently been impacted by prior-year reserve development from natural catastrophe events, and losses from the life reinsurance line of business, which required the company to restate its 2018 and 2019 financial statements, as well as the COVID-19 pandemic.
AM Best warned that if results continue to be impacted negatively and reserves continue to develop adversely, there is potential for IRB’s operating performance and balance sheet strength to deteriorate.
And while analysts acknowledge the recent improvements in the company’s ERM, IRB is still under special regulatory inspection by the Superintendência de Seguros Privados (SUSEP), the Brazilian re/insurance industry regulatory authority.
After delaying its Q1 2020 results, an internal investigation into IRB uncovered irregularities in the payment of bonuses and the amount of shares offered in its February and March 2020 repurchase program. Later, the São Paulo Court of Justice ruled in favour of IRB Brasil Re in the public citizen suit filed against the company.
In August of what’s been an eventful year for the company, which includes the expansion of its board and the addition of Isabel Blázquez Solano as Reinsurance Executive Vice President, the firm successfully raised $380 million via an issuance of common shares, in an effort to bolster liquidity margins and improve its cash position.
AM Best further noted that strategic changes are being made in IRB’s underwriting practices, which have the potential to reduce operational volatility and restore profitability after the January, renewals.
The negative outlooks reflect concerns of continued pressure on IRB’s operating performance and profitability, which could be unstable due to perforance in some lines of business and prior-year reserve development.
AM Best warned that negative rating actions could be taken if there is material deterioration of IRB’s balance sheet strength or operating performance, particularly it there is adverse prior-year reserve development or unprofitable underwriting.