European diversification helps Barents Re secure upgrade
Barents Re, the Panama-based reinsurance company, has secured a rating upgrade from AM Best, based partly on its diversification into Europe in recent years.
The rating agency upgraded the firm’s financial strength rating to A (Excellent) from A- (Excellent). The outlook for both ratings was revised to stable from positive.
AM Best said the upgrade reflects Barents Re’s strong operating performance registered as the company achieved geographic diversification goals and maintained conservative retention levels supported by a solid retrocession programme.
In addition, the company has been able to grow its capital base through substantial capital contributions from its holding company during the past two years and through good profitability levels. As a result, Barents Re has attained outstanding risk-adjusted capitalisation levels, according to Best’s Capital Adequacy Ratio (BCAR).
“Barents Re achieved its targeted geographical distribution during 2014 by further expanding into Europe while maintaining a conservative retention profile and strong underwriting practices,” the rating agency said.
“While the geographic mix of its portfolio experienced considerable changes due to new businesses in the European region, the short-tail nature of the risks reinsured and its solid retrocession reinsurance programme set the basis for the profitable development of its operations, which at year-end 2014 amounted for 49 percent of its gross written premiums. Retained premiums are distributed 41 percent in Europe, 33 percent in Latin America and 27 percent in MENA/Asia. Business lines do not present significant concentrations.”
AM Best added that, in line with its risk appetite and tolerance, Barents Re possesses strong enterprise risk management practices that allow the company to closely follow emerging risks in all the areas of its operations, in conjunction with the development of its internal economic capital model.
“AM Best believes Barents Re is prepared to assess potential risks related with further growth and expansion into new products or regions, based on a good track record in terms of bottom line results for the past five years. Investment policy within the company is conservative and has resulted in constant positive yields that support the company’s operating performance,” it said.
In terms of profitability, Barents Re has maintained a solid return on assets and on surplus despite the strong capital contributions it has received during the past two years, standing at 8.9 percent and 11.1 percent, respectively.
Barents Re’s strong risk-adjusted capitalisation stands as one of the main drivers for the ratings due to an outstanding capital base backed by support from its holding company, as well as good profitability levels. In addition, Barents Re’s underwriting leverage of 63 percent at year-end 2014 compares favourably with its peers, AM Best said.
