AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Barents Re and its affiliate, Barents Re Lux.
AM Best suggests that the revised outlooks reflect the reversion of the negative trend in Barents Re’s operating performance metrics and improvement in the company’s corporate governance framework.
The rating agency notes that while stability is expected, failure to execute strategic plans successfully may result in negative rating actions.
Meanwhile, the Credit Ratings reflect Barents Re’s balance sheet strength, which AM Best assesses as strongest, alongside its strong operating performance, neutral business profile and appropriate enterprise risk management.
Further, the rating affirmations reflect Barents Re’s risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and geographical diversification.
Best notes that limiting the ratings is the constantly shifting regional composition of Barents Re’s portfolio and the uncertainty regarding the impact on the company’s level of profitability.
The rating agency also affirmed that Barents Re provides a parental guarantee and reinsurance support to Barents Re Lux. The firm is in the course of obtaining their UK branch license and is currently operating under the temporary permissions regime until the end of 2023. Failure to obtain the UK branch license would put operational pressure on the company.
AM Best writes, “Barents Re’s business portfolio in 2021 contracted year over year by 17.4%, mainly driven by a premium reduction in specialty lines, albeit partially offset by growth in Barents Re’s other business lines. Overall, Europe-sourced business represents 87% of its portfolio, with Latin America region generating 7% and the Middle East and North Africa region holding the rest.
“The company is supported by its diversified and comprehensive reinsurance program placed among reinsurers with a good level of security, a key characteristic that Barents Re has adopted to enter new business lines and regions prudently.
“Although operating performance have shifted over time toward a different structure, Barents Re’s current metrics still compare favorably with the market. As of June 2022, the company presented a positive bottom-line result of USD 19.9 million, showing resilience to the current market conditions.
“Although there is volatility present in the company’s premium volume and the composition of the business portfolio, Barents Re has been able to produce consistently positive operating earnings across multiple underwriting cycles.”
Best states that Barents Re’s risk-adjusted capitalisation still reflects capital contributions in 2016 and 2017, along with positive bottom-line results in recent years.
It adds that the company’s reinsurance program adequately covers exposures, and its net exposures to catastrophe events do not represent a significant portion of its reported surplus.
Concluding, AM Best reports that positive rating actions are not expected in the medium term. Factors that could lead to negative rating actions are the deterioration in the expected performance of the company in terms of profitability and capital generation.
Also, negative rating actions could occur as a result of a breakdown in its corporate governance due to regulatory issues or a breach in controlling its operational risks, it says.
