AM Best has affirmed the financial strength rating of B++ (Good) and the long-term issuer credit rating of “bbb” (Good) of Bermudian-based Golden Tree Reinsurance Ltd.

The outlook of these credit ratings is stable.

Golden Tree is a subsidiary of Iris Financial Services Ltd and is owned ultimately by Springbrook Capital Ltd, a privately held holding company with diversified operations in insurance and financial services.

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

Golden Tree was established in 2015 as a segregated portfolio company. In 2019, the company was licensed as a Class 3A insurer under Bermuda laws to provide reinsurance capacity for commercial credit and credit life risks as part of the group’s retrocession cover, with geographic exposure mainly to Colombia’s insurance market.

AM Best said the ratings also reflect Golden Tree’s sound operating performance, improving business profile and its affiliation to IFS, which provides synergies and operating efficiencies, as well as an appropriate ERM framework.

Offsetting these positive rating factors are Golden Tree’s concentration in one business line and the strong competitive environment in its target geographic market of Colombia.

Nevertheless, AM Best said, the company has already begun to expand beyond its core market with new specialty lines and by providing coverage to third parties.

The ratings agency said Golden Tree’s balance sheet strength level of strongest is underpinned by a capital base reflecting consistent growth according to a 19.2 per cent compound annual growth rate, in conjunction with its strongest level of risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio.

Additionally, the company’s capital base has strengthened over time as a result of its sound underwriting practices. In 2023, the company sustained profitability mainly through underwriting, enabling it to generate a return-on-equity ratio of 29.8 per cent.

AM Best expects Golden Tree to maintain its important role in the group’s strategy. This comes amid healthy growth prospects for the company and consistent profitability generated by business from the group’s proprietary managing general agent, which also has contributed to improve Golden Tree’s geographic footprint in the United States.

Investment income, driven by a diversified strategy, has continued to support Golden Tree’s results further; however, the company is not dependent on this revenue to achieve positive bottom-line results.

AM Best said factors that could lead to a rating upgrade for Golden Tree include increased business diversification and consistent operating performance while maintaining capital adequacy that supports the current ratings.

Factors that could lead to negative rating action include a material loss of capital, either from a substantial decline in profitability, due to new business volatility or execution risk, or an aggressive dividend policy, which reduces risk-adjusted capitalisation to a level that no longer supports Golden Tree’s ratings.