AM Best has affirmed the credit ratings of island-domiciled Brit Reinsurance (Bermuda) Ltd.

The agency affirmed the company’s financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent).

The outlook of these credit ratings is stable.

Brit Re acts primarily as an internal reinsurer for its affiliates, Lloyd’s Syndicate 2987 and Brit UW Ltd.

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

AM Best said the ratings also benefit from the implicit and explicit support of its intermediate parent, Brit Ltd, and its ultimate parent, Fairfax Financial Holdings Ltd.

The ratings agency said: “In 2024, Brit Re put in place a new growth strategy focusing on third-party business outside of Brit Group, to expand its property/casualty and specialty [insurance and reinsurance] lines.

“The company continues to derive most of its premium from a quota share contract with Syndicate 2987.

“Brit Re’s very strong balance sheet strength is supported by historically profitable underwriting results and manageable premium growth.

“Liquidity measures are sound and supported by short-term, liquid holdings that are predominantly high-quality fixed income securities and cash.

“While the company’s risk-adjusted capitalisation is maintained consistently at the strongest level, as measured by Best’s capital adequacy ratio, the overall balance sheet assessment of very strong also considers Brit Re’s material catastrophe exposure stemming from its Syndicate 2987 business and the limited fungibility of some of its invested assets, which support Lloyd’s operations.

“A significant portion of Brit Re’s assets is pledged as collateral for a stop-loss contract written to provide Funds at Lloyd’s for Brit.”

The agency said the very strong balance sheet assessment also reflects that capital growth is constrained by sizeable dividend payments made by Brit Re to its intermediate parent within the Fairfax group.

AM Best sees the combination of significant growth in Brit Re’s third-party business, if coupled with continued significant annual dividend payouts, as having the potential to reduce Brit Re’s risk-adjusted capitalisation, as measured by BCAR.

Nevertheless, AM Best said it expects Brit Re’s risk-adjusted capitalisation to remain supportive of the overall very strong balance sheet strength assessment.

AM Best said it assesses Brit Re’s operating performance as adequate, largely based on the performance of its all-lines quota share on business written by Syndicate 2987, of which Brit Re assumes a 20 per cent share of net premiums written.

It added: “The variability of the results of the syndicate business has been offset by the profitability of the FAL stop-loss contract.

“Underwriting performance also benefits from Brit Re’s very low expense structure, which benefits from economies of scale of Brit, its parent company.

“Total investment returns have been variable over the past five years, with unrealised gains and losses impacted by the company’s longer-term, value-oriented equity portfolio and change in interest rate environment.

“In 2023, underwriting results were favourably helped by premium rate increases, the lack of shock losses and lower attritional losses from the whole account quota share with Syndicate 2987, and gains from its fixed investment portfolio.

“In the first nine months of 2024, Brit Re’s underwriting and investment results remained profitable.”

AM Best assesses Brit Re’s business profile as limited given the company’s concentrated business production, and the company’s ERM practices as appropriate due to the governance structure in place.

The agency said the company benefits from being part of Fairfax, which maintains favourable financial flexibility, a strong liquidity position and a track record of supporting its [insurance and reinsurance] subsidiaries.

Therefore, AM Best added, Fairfax provides rating enhancement to Brit Re based on the implicit and explicit support Brit Re receives from its intermediate parent, in the form of capital support, business distribution channels and overall operational integration.