AM Best has assigned a Financial Strength Rating of B+ (Good) and a Long-Term Issuer Credit Rating of “bbb-” (Good) to Newpoint Reinsurance Company Limited (NPRE) (St. Kitts and Nevis). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect NPRE’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
The risk-adjusted capitalisation of NPRE, as measured by Best’s Capital Adequacy Ratio (BCAR), is assessed at the strongest level, strengthening significantly following conversion of USD 50 million of preference shares into common equity effective March 2023. AM Best expects risk-adjusted capitalisation to remain at the strongest level prospectively, supported by the company’s planned full earnings retention over its business plan period. At first-quarter 2023 (Q1 2023), NPRE’s reported total capital consisted of USD 95.7 million of share capital and retained earnings (year-end 2022: USD 44.5 million), as well as USD 100 million issued preference shares (year-end 2022: USD 150 million), which are considered as hybrid securities under Best’s Credit Rating Methodology (BCRM). Preference shares in the capital structure result in a moderate leverage ratio (Q1 2023 adjusted leverage of 31.1%), although the absence of cash-servicing terms is considered a partially mitigating factor. The assessment also considers the company’s conservative investment portfolio, providing sufficient liquidity for its operations, and its good financial flexibility in the event of shock losses.
NPRE has generated operating profits in each year since it commenced operations in 2018. Returns to date have stemmed from its underwriting activities, with a five-year (2018-2022) weighted average combined ratio of 82.6%. Future underwriting profitability will be subject to a successful business plan execution to control loss ratios and scale the business. The balance of earnings is expected to remain skewed to underwriting returns over the company’s business plan period, with modest investment results expected from its conservative investment allocation.
NPRE is a recently established reinsurance company, licensed in St. Kitts and Nevis, which focuses on underwriting risks in three core segments of surety and trade finance, treaty reinsurance and providing capacity to managing general agents for specialty risks. NPRE underwrote gross written premium of USD 118.4 million in 2022 (2021: USD 79.7 million). The current underwriting portfolio is relatively well diversified by geography and line of business, although some concentration by clients is present. While further premium growth and diversification are expected over the coming years, NPRE’s scale in the global reinsurance market is expected to remain limited.
AM Best views the company’s ERM as marginal given the size and complexity of its operations. This assessment takes into account the execution risk associated with the recently established nature of NPRE and its developing ERM framework and risk profile.
These assigned ratings are the result of an accepted appeal from NPRE.
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