LONDON--(BUSINESS WIRE)--A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Builders Reinsurance S.A. (BRe) (Luxembourg), the reinsurance arm of Hochtief A.G., a large Germany-based construction company. Grupo ACS (Spain) has a majority shareholding in the group. The outlook for both ratings remains stable.
“Risk Management and the Rating Process for Insurance Companies”
The ratings reflect BRe’s strong and supportive risk-adjusted capitalization, an overall good financial performance and a developing risk management framework.
BRe provides reinsurance cover on risks emanating from group business and associated third party business, predominantly in the Americas. The company writes workers’ compensation, general liability and subcontractors’ default insurance, and to a minor extent, surety, builders’ risk and marine and aviation.
A.M. Best believes that BRe has a strong and supportive risk-adjusted capitalisation, which is underpinned by both a regulatory requirement of building up equalization reserves and a comprehensive reinsurance programme. It is A.M. Best’s view that those factors will support BRe’s capitalization going forward, despite the fact that the company has repatriated USD 40 million in share premium to its parent in 2012 and is potentially planning to repatriate a further USD 120 million over a period of three years.
BRe achieved a good financial performance in 2011, which produced USD 50 million in net profit. Going forward, a strong loss ratio of just below 50% is expected to support a continuing good underwriting performance that has been seen in the last three years. A.M. Best notes that due to a concentration of lines of business that are closely linked to the property market in the United States, fluctuations are also closely linked to external factors impacting that segment. Nevertheless, the severity of losses is mitigated by the company’s reduced level of retention per risk.
In A.M. Best’s view, BRe is continuing to develop a formalized corporate government structure aimed at improving risk management processes. BRe is preparing for Solvency II regulatory requirements and is currently working towards the alignment to Pillar II.
Upward rating movements are unlikely at present.
Negative rating actions could occur if BRe’s underwriting profitability were to trend negatively going forward. A significant deterioration of risk-adjusted capitalisation would also put negative pressure on 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. Key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding Universal BCAR”; “Catastrophe Analysis in A.M. Best Ratings”; “Rating Members of Insurance Groups”; and “Alternative Risk Transfer (ART)”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
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