AM Best has affirmed the financial strength rating of A+ (Superior) and the long-term issuer credit rating of “aa” (Superior) of Bermudian-based Assured Guaranty Re Overseas Ltd.

The outlook of these credit ratings is stable.

The ratings reflect AGRO’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

AGRO’s risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio, is projected by AM Best to remain at the strongest level over the next year.

The ratings agency said: "AGRO’s shareholders’ equity rebounded in 2023 after a decrease in 2022 due to mark downs in its investment portfolio.

“The company’s strong liquidity position, conservative investment portfolio and well-positioned financial flexibility due to its affiliation with Assured Guaranty Re Ltd, the indirect parent, and Assured Guaranty Ltd, the ultimate parent, as well as AGRO’s active capital management, provide support for the balance sheet strength assessment of strongest.

"AM Best assesses AGRO’s operating performance as adequate based on its operating results, which continue to be driven primarily by investment income. The company’s loss ratio remained negative in 2022-2023 after being heightened in 2020-2021. The decrease is mainly driven by favourable reserve development in the aircraft residual value insurance business.

"AGRO’s expense ratio, while still high, has come down significantly in 2023 due to an increase in earned premium from guarantee fees. The high combined ratio has affected AGRO’s overall operating performance. AGRO has low net returns on equity due to its underutilisation of capital and the opportunistic deployment of capital to new non-financial guaranty businesses."

AM Best said it assesses AGRO’s business profile as neutral.

"The company’s life financial reinsurance programme continues to exhibit risk profiles with very low loss probability. In 2023, several new lines of business were added, including a credit default swap on pooled corporate credits, non-payment insurance on subscription finance facilities, and international public finance financial guaranty.

"AGRO has limited competition with a minimal number of players in these lines of business. AGRO actively seeks opportunistic growth in non-financial guaranty business, not in chasing premium growth."

The agency said AGRO’s overall ERM assessment is appropriate, as the company employs a robust ERM framework and infrastructure embedded across the AGL group of companies, of which AGRO is a member. AM Best considers AGRO’s risk assessment capabilities to be aligned appropriately with its risk profile.

AM Best said the ratings also take into consideration the benefits and support AGRO receives from the AGL group of companies — a broader, successful franchise — and its importance to AGL’s overall business strategy and profile.