NEW YORK, NY (February 12, 2019) – Kroll Bond Rating Agency (KBRA) affirms the insurance financial strength rating (IFSR) of A- of Premia Reinsurance Ltd. (Premia), a class 4 Bermuda specialty reinsurer focused on acquiring nonlife run-off liabilities. KBRA also affirms the issuer rating of BBB of the organization’s ultimate holding company, Premia Holdings Ltd. (Premia Holdings). Premia and Premia Holdings are collectively referred to as Premia Re. Additionally, KBRA affirms the rating of BBB of Premia Holdings’ outstanding senior unsecured notes. The Outlook for all ratings is Stable.
The ratings reflect Premia Re’s sound capitalization, which KBRA believes is sufficient to support the company’s planned acquisition strategy of run-off liabilities in the medium term. Part of Premia’s capital consists of $110 million of senior unsecured notes due January 2024. Additionally, Premia Re’s ratings benefit from the equity investment of Arch Capital Group Ltd. (Arch Capital) (NASDAQ: ACGL), a 25% quota share reinsurance agreement between the companies, as well as underwriting, systems, and operational support from Arch Capital. Moreover, Premia Re’s management team has extensive experience in the reinsurance market, especially in the run-off sector, and has successfully closed on a number of run-off transactions which highlight its differentiated approach and experience during its short operating history. Premia Re acquires companies and portfolios in less volatile lines of business, eschewing property catastrophe exposure, and will maintain conservative financial leverage – currently about 22%.
Balancing these strengths is the start-up nature of the company and the execution risk for Premia Re’s management team as they enter a mature sector with established competitors. Although KBRA acknowledges that nonlife run-off business has demonstrated favorable return characteristics that are largely uncorrelated to the overall financial markets, the potential still exists for run-off business to experience adverse reserve development. This risk has been somewhat mitigated by the acquisition in September 2018 of Alan Gray LLC, a well-established and highly respected claim and audit service firm that will represent a second operating pillar for Premia. Premia Re reported net income and a breakeven combined ratio in 2017, its first year of operations. KBRA expects improved results in 2018. Finally, key man risk exists in that Premia Re needs to continue to build out its management team over time to develop bench strength for succession planning.
The Stable Outlook reflects KBRA’s expectations that Premia Re will continue to maintain sound capitalization while successfully executing its run-off acquisition strategy. Additionally, KBRA expects Premia Re to experience minimal credit losses in its investment portfolio, retain key members of its management team, and preserve financial flexibility through conservative balance sheet metrics.
The ratings are based on KBRA’s Global Insurer & Insurance Holding Company Rating Methodology published on October 10, 2017.
An updated report will be available shortly.