AM Best affirms financial strength of Gulf Re

AM Best has affirmed the financial strength rating (FSR) of A- (Excellent) of Gulf Reinsurance (Gulf Re), with a stable outlook for this rating.

According to AM Best, the rating reflects Gulf Re’s strong risk-adjusted capitalisation and lower volatility of prospective performance.

Offsetting rating factors include the company’s limited business profile and limited internal enterprise risk management capability. Gulf Re’s ratings benefit from the financial strength of its ultimate parent, Arch Reinsurance (Arch Re).

AM Best said the enhanced support provided to Gulf Re from co-founder Arch follows Arch’s acquisition of 100 percent ownership of Gulf Re in May 2015.

Arch’s commitment to Gulf Re extends further through a 90 percent quota share arrangement and loss portfolio transfer between the two companies, risk management services, underwriting guidance and strategic reviews of its operations. Co-founder Gulf Investment Corporation (GIC) continues to remain a strategic partner, with a minority board position.

Gulf Re’s paid-up capital, following the transaction, has been reduced to $70 million from $200 million, reflecting the lower risk profile of the company. Risk-adjusted capitalisation remains at a strong level and sufficient to support the company’s operation over the short-to-medium term, and the company maintains sound liquidity.

Gulf Re reported a profit of $1.2 million in 2015, significantly aided by the quota share arrangement between Gulf Re and Arch, with Arch absorbing underwriting losses on Gulf Re’s gross account.

Since inception, Gulf Re has struggled to achieve the scale necessary to create a well-diversified underwriting portfolio and has faced the challenges of operating in a fiercely competitive and soft reinsurance market.

AM Best expects Gulf Re’s prospective performance to be significantly smoothed by the company’s low level of retained risk.