Results further bolstered by intermediate and parent firms
The ratings, the credit agency stated, reflect Brit Re’s strong balance sheet, its satisfactory operating performance, its focused business profile, and its adequate enterprise risk management (ERM) practices. Additionally, the ratings are bolstered by the support from Brit Re’s intermediate parent, Brit Limited, and its ultimate parent, Fairfax Financial Holdings Limited.
Based in Bermuda, Brit Re primarily operates as an internal reinsurer for its affiliates, including Lloyd’s Syndicate 2987 and Brit UW Limited. The company also engages in writing casualty treaty reinsurance and fronts for the insurance-linked securities platform of its affiliate, Sussex Capital. Most of its premium revenue, AM Best noted, comes from a quota share contract with Syndicate 2987.
Brit Re’s balance sheet strength is also supported by a history of profitable underwriting and steady premium growth, buoyed by rate increases in underlying lines of business. The company’s liquidity is robust, underscored by short-term liquid holdings that mainly consist of high-quality fixed income securities and cash.
Brit Re’s capital adequacy ratio – how does it perform?
While Brit Re’s risk-adjusted capitalization is consistently strong as per Best’s Capital Adequacy Ratio (BCAR), its balance sheet strength also considers the material catastrophe risk exposure from its Syndicate 2987 business and the limited fungibility of its invested assets.
A notable portion of the company’s assets is pledged as collateral for a stop-loss contract. Despite occasionally large dividend payments to its parent within the Fairfax group, Brit Re maintains a very strong balance sheet.
Brit Re’s operating performance is also deemed adequate, primarily driven by its quota share agreement with Syndicate 2987, wherein Brit Re assumes a 20% share of net premiums. Although major catastrophe losses have affected results in the past, the syndicate’s rate improvements and the profitability of the FAL stop-loss contract have provided a balance.
Brit Re also benefits from a very low expense structure. The company has experienced variable investment returns over the past five years, with fluctuations in its equity portfolio impacting long-term results. In 2022, underwriting results improved due to premium rate increases and lower losses, which were offset partially by losses in the fixed income portfolio. For the first nine months of 2023, Brit Re reported profitable underwriting and investment results.
Brit Re’s business profile is considered limited due to its concentrated business production. However, its ERM practices are viewed as appropriate, supported by a robust governance structure.
Being part of the Fairfax group, Brit Re also enjoys the advantages of Fairfax’s strong financial flexibility and liquidity, as well as a history of supporting its re/insurance subsidiaries. This affiliation provides Brit Re with additional rating enhancements, owing to the support it receives from its parent companies.
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