A.M. Best has upgraded the Financial Strength Rating to A-
(Excellent) from B++ (Good) and the Long-Term Issuer Credit Rating to
“a-” from “bbb+” of Active Capital Reinsurance, Ltd. (AC Re)
(Barbados). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect AC Re’s balance sheet strength, which A.M. Best
categorizes as strongest, as well as its adequate operating performance,
neutral business profile and appropriate enterprise risk management
The rating upgrades reflect AC Re’s balance sheet strength underpinned
by risk-adjusted capitalization at the strongest level, as measured by
Best’s Capital Adequacy Ratio (BCAR), improving operating performance,
adequate reinsurance program and supporting risk management framework
for its risk profile. An offsetting rating factor is the strong
competitive environment in its target geographic markets the company
faces through its global expansion, more recently in Europe.
AC Re is a Barbados-based reinsurer established in 2007. The company
operates mainly in the Latin America market, with net premiums written
comprised of surety (72.1%), affinity (20.3%), and property/casualty
(7.6%) as of 2017. The company has a diversified geographic footprint in
Central, South America and Europe and focuses its underwriting efforts
on short-term non-catastrophe risks.
The company increased its paid capital by 66% in 2016, which coupled
with an increased reinvestment of earnings through 2017, has maintained
AC Re’s risk-adjusted capitalization at the strongest level. The
company’s expansion strategy has been reinforced adequately by its
reinsurance program, placed among a diversified group of reinsurers with
good security levels, consequently minimizing counterparty credit risk
exposures. Moreover, the company is characterized by a conservative
underwriting leverage as reflected by a net premiums written to surplus
of 1.09x. Nevertheless, the ratings could be susceptible to uncertainty
over future underwriting performance, as the company expands its
business into new geographic markets.
In 2017, while expanding into new geographies, AC Re improved positive
bottom line results through reduced acquisition expenses and improved
operating efficiencies, and despite higher claims expenses derived from
its affinity line of business, AC Re managed to generate a return on
earned premium and return on equity of 15.4% and 16.9%, respectively.
The continuous improvement in the company´s ERM framework has allowed AC
Re to better identify and manage its risks. As a result, related party
transactions continue to be reduced significantly, improving its
Positive rating actions could occur if the company continues to
strengthen its capital adequacy position and successfully continues to
grow with good operating performance. Conversely, negative rating
actions could result from deterioration in risk-adjusted capital due to
an aggressive dividend policy or a sharp deterioration in underwriting
principles, or from negative operating performance that renders the
strategy and BCAR model scores non-supportive of the ratings.
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Best’s Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
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