Credit ratings agency AM Best has assigned Switzerland-based Ikano Re AG a Financial Strength Rating of A (Excellent) and a Long-Term Issuer Credit Rating of “a” (Excellent), with a stable outlook.
The founding family of the global retail store brand, IKEA, is the majority owner of Ikano Re.
The reinsurer provides reinsurance protection for risks linked to the global IKEA franchise system, most of which is concentrated in property damage and business interruption coverage of the IKEA stores around the world.
Interestingly, AM Best note that Ikano Re also provides additional reinsurance capacity for global natural catastrophe risks led by reputed reinsurers, which is expected to make up a third of its premiums over the medium term. So, it appears as though Ikano Re will diversify its portfolio outside of IKEA group’s own risks, which means this is also market-facing as well as a captive reinsurer for its parent.
AM Best explained that these ratings reflect Ikano Re’s “very strong” balance sheet strength, strong operating performance, limited business profile, and appropriate enterprise risk management.
As measured by Best’s Capital Adequacy Ratio (BCAR), Ikano Re’s balance sheet assessment is underpinned by its risk-adjusted capitalisation, which is expected to remain “comfortably in excess of the minimum required for the strongest assessment level.”
AM Best also expects the company’s business to remain dependent on retrocession for the capacity that it offers, albeit its retrocession partners are generally of excellent credit quality.
The assessment also considers Ikano Re’s conservative investment strategy and prudent reserving practices. The reinsurer has a track record of strong operating performance, generating a five-year (2021-2025) weighted average return-on-equity ratio of 17.8%, according to AM Best.
“Results have been underpinned by good underwriting performance, as demonstrated by a five-year (2021-2025) weighted average combined ratio of 46.4%, which reflects very low levels of expenses and modest average claims experience, we consider Ikano Re’s risk management capabilities to be commensurate with its risk profile,” explained the credit ratings agency.
