AM Best has affirmed the long-term issuer credit ratings of “bbb-” (Good) of Bermudian-based R&Q Insurance Holdings Ltd.

Concurrently, AM Best has removed from under review with negative implications and affirmed the financial strength ratings of A- (Excellent) and the Long-Term ICR of “a-” (Excellent) of three wholly owned subsidiaries of R&Q.

The outlook assigned to these credit ratings is stable.

The ratings have been removed from under review with negative implications following the successful execution of the group’s fundraise this month.

R&Q raised total proceeds of $129.5 million, restoring its capital base after reporting a loss on an IFRS basis of $127.4 million in 2021.

In AM Best’s view, the subsidiaries are strategically important to and integrated within the R&Q group. These companies are pivotal to the group’s growing programme management business, providing insurance services to managing general agents.

In addition, they hold licences essential for the group’s core operations of programme and legacy business in the United States and Europe.

Their ratings reflect the consolidated balance sheet strength of R&Q, which AM Best assesses as very strong, as well as R&Q’s adequate operating performance, neutral business profile and appropriate enterprise risk management.

R&Q’s consolidated risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio, remained at the strongest level at year-end 2021 and is expected to remain at least at the very strong level over the medium term.

R&Q’s relatively conservative investment strategy and track record of largely favourable reserve development are viewed as positive factors in the balance sheet strength assessment.

R&Q’s high dependence on reinsurance and historical volatility in risk-adjusted capitalisation are offsetting factors.

R&Q reported a significant IFRS loss after tax in 2021, equivalent to a return-on-equity ratio of almost -30 per cent, primarily driven by a pre-tax, non-cash $90 million impairment of an asset relating to a structured reinsurance contract, which was commuted. This is considered a non-recurring, exceptional item.

The adequate operating performance assessment reflects a track record of generally profitable but volatile results before 2021, demonstrated by a five-year weighted average ROE of 9.5 per cent for the period ending in 2020.

The group's recent initiatives, including the formation and launch of its reinsurance sidecar and the growth of its programme management business, are expected to result in fee income generating a larger portion of earnings and reducing volatility over the short-to-medium term, although execution risk exists.

R&Q’s neutral business profile assessment reflects a good competitive position as a specialist in the small to medium-sized run-off market and a growing presence in the programme management market.

The formation and launch of reinsurance sidecar, Gibson Re, in 2021 has given the group access to $300 million of third-party committed capital to support the growth of its legacy business over a three-year underwriting period.

A failure to secure further financing following Gibson Re’s three-year underwriting period and/or poor underwriting performance of the MGAs within the programme management business, could adversely impact R&Q’s business profile and earnings, AM Best said.