NEW YORK (July 20, 2022) – KBRA affirms the A insurance financial strength rating (IFSR) on Premia Reinsurance Ltd. KBRA also affirms the BBB+ issuer rating on Premia Holdings Ltd. as well as the BBB debt ratings on all of Premia Holdings’ subordinated notes. The Outlook for all ratings is Stable.
Key Credit Considerations
The ratings reflect Premia’s ongoing successful execution of its run-off business strategy. Over the past five years, Premia has acquired more than USD 3 billion in gross loss reserves across several transactions, including the acquisition of insurance regulated entities in the US, UK, Belgium, Luxembourg and Lloyd’s of London (AA-/Stable). Through a combination of retained earnings and a manageable amount of additional debt, Premia Holdings’ capital grew to USD 829.3 million at end-2021, up 22.4% over prior year end. KBRA believes that both the group and the lead operating company maintain strong risk-based capitalization with significant capacity to execute additional transactions over the medium term. Premia Holdings’ financial leverage was 29.8% at end-2021. KBRA expects the company to prudently source any additional debt capital to support planned growth. With fee income from Alan Gray LLC, the group’s claims management administrator, significant dividend capacity from Premia Re, the group’s lead operating company, and material interest expense savings from the refinancing of the company’s senior unsecured notes in May 2022, interest coverage on all outstanding debt is strong. With a proven track record of accessing needed capital from banks as well as the private debt and equity markets, Premia also has access to soft capital from its sidecar, Elevation Re (SPC) Ltd., and from its sponsor, Arch Capital Group Ltd. (NASDAQ: ACGL) via reinsurance support. KBRA believes that Premia has a comprehensive, and continually evolving, risk management framework. Extensive modeling and stress testing of individual transactions and the entire portfolio are performed to ensure that capital remains sound, liquidity is strong to pay liabilities when due, and regulatory requirements are met. KBRA believes that Premia operates under conservative risk tolerances and guidelines.
Balancing these strengths are increased competition and capital inflows into the non-life run-off market, partially offset by growing market demand for run-off solutions by active underwriters seeking to free up capital in order to grow their business in current attractive pricing environments. KBRA believes that despite the increased competition, Premia is well-positioned to capitalize on current market opportunities due to its size, infrastructure, and underwriting expertise. Premia is also exposed to potential adverse loss reserve development as KBRA believes that long-tail casualty is subject to a high risk of change due to evolving societal, legal and regulatory environments over the life of the claim settlement process. The current economic pressure from rising inflation adds further uncertainly to the eventual outcome of the claims settlement process.
Favorable capital trends, continued successful execution of its run-off business strategy, and favorable earnings trends as evidenced by the underlying economics of the transactions could generate a positive rating action. A significant change in profile or business strategy, material adverse loss development or realized investment losses, elevated financial leverage, or loss of a key member of the management team could result in a negative rating action.
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Carol Pierce, Senior Director (Lead Analyst)
+1 (647) 731-3307
Ethan Kline, Associate
+1 (646) 731-1278
Peter Giacone, Senior Managing Director (Rating Committee Chair)
+1 (646) 731-2407
Business Development Contact
Tina Bukow, Managing Director
+1 (646) 731-2368
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
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