Research: Moody's assign A3 insurance financial strength rating to … – Moody's

London , July 11, 2022 – Moody’s Investors service has today assigned an A3 insurance financial strength rating (IFSR) to Barents Re Reinsurance Company, Inc. (“Barents Re” or “the group”), the Cayman Islands based holding company and main operating entity of the Barents Re Group. The outlook is stable. Barents Re underwrites reinsurance across the European, Middle East & Africa, Latin America and Asia regions.
RATINGS RATIONALE
The A3 IFSR of Barents Re is underpinned by the group’s strong financial profile including: (1) strong capitalisation with gross underwriting leverage (GUL) consistently below 2.0x with a minimal net exposure to natural catastrophe risk; (2) good asset quality with a very conservative investment portfolio; and (3) consistently good underwriting performance and the growing diversification of its earnings base. These strengthens are tempered by the group’s (1) modest scale and reliance of retrocession capacity; (2) limited product diversification with a focus on products which Moody’s views as more risky than standard commercial policies; and (3) the constraints associated with private ownership.
Barents Re provides reinsurance protection across a select number of core segments, including Energy, Surety Bonds, Property and Life, Accident and Health. While Barents Re is of modest scale relative to its global reinsurance peers, it is nevertheless able to provide meaningful levels of capacity to clients in its chosen markets. The group’s long standing relationships with brokers, cedants and retrocession partners, as well as its underwriting expertise in its chosen segments further strengthens its market position. The Agency views Barents Re’s growth prospects as good, supported by both pricing trends and new business volumes.
The Rating Agency views Barents Re’s capital adequacy as a key credit strength. This is evidenced by the group’s low GUL, consistently below 2.0x, and high shareholders equity relative to total assets at 45% as at YE2021. The group’s regulatory ratio (under the Cayman Islands Monetary Authority regime) stood at 431% as at YE2021 (YE2020: 256%), indicating that the group maintains strong buffers above required capital in the context of its conservative investment strategy and minimal natural catastrophe exposures. The group’s quality of capital is also strong, comprised entirely of unrestricted Tier 1 shareholders’ equity.
Barents Re’s has a very modest exposure to natural catastrophe risks, as measured by its modelled net catastrophe losses relative to equity. However, the group does focus on insurance products which can result in very large claims and are considered by Moody’s to be more risky than standard commercial insurance products where the law of large numbers is more applicable. The group manages and mitigates this risk through the use of retrocession.
Barents Re use retrocession to support its underwriting capacity, reduce earnings volatility and to protect the group against the risk of significant capital erosion due to large losses, which its book is exposed to. However, this dependence on retrocession elevates counterparty exposures and the risk that capacity becomes unavailable or unaffordable in the future, which could dampen the group’s market position, profitability or both.
The Rating Agency says that the group’s high level of capitalisation supresses its overall reported returns on capital (ROC). The five year average ROC amounted to a relatively modest 4.8% (2021-2017), although this includes the impact of COVID19, and increased to a healthier 7.4% for YE2021 standalone. The group also maintains a conversative investment portfolio, with high risk assets relative to shareholders equity consistently below 3% over the past five years. As such investment returns are only a moderate contributor to the group’s overall earnings.
Underwriting performance has been consistently good, with a five year combined ratio below 90% (calculated on a Moody’s basis, including general operating expenses and the impact of COVID19 in 2020). Moody’s views Barents Re’s focus on underwriting discipline as positive, and expects the group to continue to grow and diversify its earnings base. However, absolute earnings could fluctuate, depending on premium volumes written and reserve development. In this regard, Moody’s views Barents Re’s reserving risk as elevated by the large, lumpy and heterogeneous nature of the group’s claims, mitigated by the short duration of its insurance liabilities and retrocession in place.
Long term, Moody’s highlighted that carbon transition risks could impact the group’s underwriting given its high exposure to the Energy segment. The assignment of a new rating to Barents Re also takes into account the effectiveness of the group’s governance as part of Moody’s assessment of environmental, social and governance (ESG) considerations. Moody’s does not have any particular concerns although note that the group’s private ownership status could limit Barents Re’s access to capital.
Barents Re’s founder and chairman, Mr Garcia, has been a major shareholder of Barents Re since its inception in 1996. Moody’s view positively the alignment between the shareholder and board’s focus on cautious long term international expansion. The Agency also notes that Barents Re has paid no dividends since its inception, reinvesting all capital generated back into the business, and is self-funding with minimal leverage in the form of operating leases. The group also has access to some additional funding via its Luxembourg based subsidiary, Barents Reinsurance SA as well as retrocession capacity provided by its long-term retro partners. Nevertheless, its access to capital is more constrained relatively to larger, listed groups which have a track record in accessing external debt markets.
STABLE OUTLOOK
The outlook on Barents Re is stable. This reflects Moody’s expectation that the group will continue to maintain strong capital levels with minimal exposure to natural catastrophes and good, consistent underwriting performance even as the composition of premiums develops internationally.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Moody’s said that the following factors could place upward pressure on the group’s rating: (1) significant improvement in Barents Re’s market position amongst global reinsurance peers including attaining the scale necessary to compete as a core reinsurers in a greater number of markets; (2) ROC consistently in excess of 8% whilst maintaining a conservative investment portfolio and modest catastrophe exposures; and (3) the continued growth and diversification of the group’s premiums and earnings base.
Conversely, Moody’s said that the following factors could place downward pressure on the group’s rating: (1) a sustained deterioration in capital adequacy with the group’s regulatory capital falling below 220% and/or GUL consistently above 2.5x; (2) a meaningful increase in modelled natural catastrophe exposures or changes in market conditions which would limit Barents Re’s ability to ultilize retro capacity; (3) a sustained deterioration in underwriting profitability, as evidenced by combined ratios consistently above 95% (calculated on a Moody’s basis); and/or (4) a meaningful increase in high risk assets relative to shareholders’ equity.
LIST OF AFFECTED RATINGS
Issuer: Barents Re Reinsurance Company, Inc.
..Assignment:
…Insurance financial strength rating, assigned at A3
..Outlook Action:
….Outlook is Stable
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Reinsurers Methodology published in November 2019 and available at https://ratings.moodys.com/api/rmc-documents/65391 . Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions .
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com .
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com .
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235 .
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com .

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.


Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Helena Kingsley-Tomkins
VP-Senior Analyst
Financial Institutions Group
Moody’s Investors Service Ltd.
One Canada Square
Canary Wharf
London
United Kingdom
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Client Service : 44 20 7772 5454

Simon James Robin Ainsworth
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Releasing Office :
Moody’s Investors Service Ltd.
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