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AM Best removes R&Q companies from being under review with negative implications

21st July 2022 - Author: Pete Carvill

AM Best has removed Accredited Surety and Casualty company, Accredited Specialty Insurance Company, and Accredited insurance (Europe) from being under review with negative implications.

am-best-logoConcurrently, the company said it had affirmed Financial Strength Ratings for the firms of A- (Excellent) and Long-Term Issuer Credit Ratings of a- (Excellent). It has also affirmed the Long-Term ICR of “bbb-” (Good) of R&Q Insurance Holdings. The outlook assigned to these Credit Ratings (ratings) is stable. The three companies are wholly owned subsidiaries of R&Q.

In a statement, AM Best said that the three are ‘strategically important to and integrated within the R&Q group’.

It added: “These companies are pivotal to the group’s growing programme management business, providing insurance services to managing general agents (MGAs). In addition, they hold licences essential for the group’s core operations of programme and legacy business in the United States and Europe.”

It went on: “The ratings of ASC, ASI, and AIEL reflect the consolidated balance sheet strength of R&Q, which AM Best assesses as very strong, as well as R&Q’s adequate operating performance, neutral business profile and appropriate enterprise risk management. The rating of R&Q as a non-operating insurance holding company is determined by reference to the credit assessment of R&Q on a consolidated basis and the normal subordination of holding company creditors to operating company policyholders.”

Stratumn, by SIA Partners

AM Best said that the ratings have been removed from under review with negative implications following the successful execution of the group’s fundraise in July 2022. R&Q raised total proceeds of $129.5m, restoring its capital base after reporting a loss on an IFRS basis of $127.4m in 2021.

The company wrote: “R&Q’s consolidated risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), remained at the strongest level at year-end 2021 and is expected to remain at least at the very strong level over the medium term. R&Q’s relatively conservative investment strategy and track record of largely favourable reserve development are viewed as positive factors in the balance sheet strength assessment. R&Q’s high dependence on reinsurance and historical volatility in risk-adjusted capitalisation are offsetting factors.”

It added: “R&Q reported a significant IFRS loss after tax in 2021, equivalent to a return-on-equity ratio (ROE) of almost -30%, primarily driven by a pre-tax, non-cash $90m impairment of an asset relating to a structured reinsurance contract, which was commuted. This is considered a non-recurring, exceptional item. The adequate operating performance assessment reflects a track record of generally profitable but volatile results prior to 2021, demonstrated by a five-year weighted average ROE of 9.5% for the period ending in 2020. The group’s recent initiatives, including the formation and launch of its reinsurance sidecar and the growth of its programme management business, are expected to result in fee income generating a larger portion of earnings and reducing volatility over the short-to-medium term, although execution risk exists.”

AM Best said that R&Q’s neutral business profile assessment reflects a good competitive position as a specialist in the small- to medium-sized run-off market and a growing presence in the programme management market.

It added that the formation and launch of reinsurance sidecar, Gibson Re, in 2021 has given the group access to $300m of third-party committed capital to support the growth of its legacy business over a three-year underwriting period. A failure to secure further financing following Gibson Re’s three-year underwriting period and/or poor underwriting performance of the MGAs within the programme management business, could adversely impact R&Q’s business profile and earnings.

 

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