AM Best affirms credit ratings of Barents Re Reinsurance Company

Wednesday, December 20, 2017


A.M. Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a" of Barents Re Reinsurance Company, Inc. (Barents Re) (Panama City, Panama). The outlook of these Credit Ratings (ratings) remains stable.

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The ratings reflect Barents Re's balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The rating affirmation reflects the company's consistent risk-adjusted capitalization, profitability and geographical diversification. The ratings also recognize the company's good ERM practices. Limiting the ratings is the still evolving regional composition of Barents Re's portfolio and the uncertainty regarding the impact on the company's level of profitability.

During 2016, Barents Re continued to reduce its business in Latin America and increased its participation in Europe, diminishing its premium volume while maintaining good profitability metrics. This was supported by its diversified and comprehensive reinsurance program placed among reinsurers with a good level of security, a key characteristic that Barents Re has adopted in order to prudently enter new business lines and regions. As the business portfolio contracted, results were also impacted by an increased loss ratio in financial lines and energy in Latin America, while European business, especially energy, continued to post strong performance. As of June 2017, underwriting performance has returned to historical levels. For year-end 2016, the company posted net income of USD19.3 million with a return on equity of 6%, despite the soft reinsurance market conditions.

The company's risk-adjusted capitalization is categorized as strongest, as a result of a capital contribution in 2016 and positive bottom line results in the past five years. Exposures are adequately covered by its reinsurance program and the company's net exposures to catastrophe events do not represent a significant portion of its reported surplus. This strengthens A.M. Best's view of the company's ERM practices, as it has been able to balance its risk appetite with risk-bearing capabilities, which is also reflected in a conservative investment portfolio.

The ratings are limited by the uncertainty of future underwriting income in markets where the company has expanded operations in previous years and plans to expand in the medium term.

Positive rating actions could take place if the company continues developing its ERM capabilities while providing sufficient evidence of its use in capital decisions and while maintaining a positive operating performance guided by underwriting performance and strong risk-adjusted capitalization, as measured by Best's Capital Adequacy Model. Negative rating actions could occur if the regional shifting of the portfolio consistently produces negative results that affect the company's overall profitability, resulting in deterioration of its capital base, or if by any other means risk-adjusted capital becomes non-supportive of current 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