AM Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) of Bermudian-based RVI Guaranty Co Ltd and it’s Delaware-based subsidiary RVI America Insurance Company.

The outlook of these credit ratings is stable.

The ratings reflect RVI’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.

The agency said RVI’s risk-adjusted capitalisation level, financial flexibility, high credit quality investment portfolio and adequate liquidity position support AM Best’s balance sheet strength assessment of strongest.

AM Best assesses RVI’s risk-adjusted capitalisation at the strongest level on base and stress scenarios, as measured by Best’s capital adequacy ratio.

RVI Acquisition Holdings LLC, a Delaware limited liability company, acquired RVI in May 2020, at which time RVI became affiliated with Group 1001 Insurance Holdings LLC.

Following the acquisition, AM Best said, RVI gained access to the expertise in the broader family associated with Group1001, which could help in its investment, risk management, liquidity management and business development.

AM Best assesses RVI’s operating performance as adequate. The company has stable long-term earnings, along with historically low loss ratios, high expense ratios and combined ratios well below 100 per cent.

The low loss ratios and high expense ratios are not unexpected for the residual value insurance products in which RVI was historically concentrated.

As RVI expands into more traditional property/casualty lines of business, AM Best said, the loss ratios may rise naturally as the expense ratio falls.

RVI has average annual earnings of $11.3 million over the past five years, and a five-year average combined ratio of 75.8 per cent.

AM Best said RVI achieved these operating results while also growing its premium volume. RVI’s net premium written increased by approximately 37 per cent in 2022 and approximately 14 per cent in 2021.

The agency said RVI’s entrance into traditional property/casualty reinsurance drove the premium increase in 2022. Passenger vehicle residual value insurance in China drove the increase in premium volume in 2021.

High product risk drives RVI’s limited business profile assessment, AM Best said.

The company’s product risk associated with its residual value insurance segments is correlated highly with the broader macroeconomy. Also, low-frequency and high-severity claims typically characterise the risk profile of RVI’s residual value insurance segments.

However, the agency added, RVI’s business profile benefits from a leading market position, little competition in the residual value insurance sector and high client retention rate.

Historically, RVI was concentrated narrowly in residual value insurance product lines; however, in recent years, RVI is expanding opportunistically into new lines of business that may provide beneficial diversification in the future.

AM Best assesses RVI’s ERM as appropriate because the company has a formal ERM process that is commensurate with the size, nature and complexity of its business.

In general, the agency added, the company aligns its risk assessment capability with its risk profile. Management closely monitors the company’s risk profile and adjusts risk management goals to improve its risk exposure.