AM Best has revised its outlook from stable to negative for Selecta Insurance and Reinsurance Company (Caribbean) Ltd., citing volatility in the company’s historical underwriting results and the ongoing impact of legacy business on performance.
At the same time, the rating agency affirmed the company’s Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good), saying they reflect Selecta’s balance sheet strength, adequate operating performance, limited business profile and marginal enterprise risk management.
AM Best notes that Selecta’s legacy business has increased uncertainty regarding the ability of West Indies based re/insurer to produce operating results supportive of an adequate assessment as it executes its business plan.
Analysts expect Selecta’s prospective BCAR scores to remain comfortably at the strongest level, supported by internal capital generation and controlled growth in line with its business plan.
But offsetting factors include the company’s exposure to the high economic and moderate financial system and political risk in Saint Kitts and Nevis, where it is headquartered.
In 2022, Selecta reported a combined ratio of 98%, but its prospective technical results remain exposed to volatility due to an evolving underwriting portfolio, in terms of lines of business and risk locations, as the company executes its business plan.
AM Best also notes that Selecta’s net investment returns contribute modestly, albeit positively, to the company’s operating profitability, reflective of its conservative investment portfolio.
Selecta is a specialist facultative reinsurer that underwrites risks in multiple territories and lines of business, and a material portion of the company’s premiums is derived from a group with a common shareholder, Sun Group MGA, which consists of several managing general agents.
Given its relatively small scale, the company does not have an established profile in the international markets in which it operates, but AM Best expects Selecta to grow its portfolio gradually in line with its business plan, supported by its underwriting capacity and by management’s experience.
