ASR Re's financial performance is expected to improve in 2024 on business growth and fewer large losses, says Fitch Ratings.
In a report, Fitch says that it expects ASR Re’s revenues to grow sharply in 2024 following the set-up of a syndicate at Lloyd's of London and the opening of offices in Dubai and Morocco along with increased binder capacity. The reinsurer’s insurance revenues reached $42m in 2023, up from $17m in 2022.
The Bermuda-domiciled reinsurer was founded in 2021 and underwrites corporate specialty reinsurance business across Africa and the Middle East. It is part of the Africa Specialty Risks (ASR) group.
Fitch views ASR Re's financial performance as strong. ASR Re generated a net profit of $0.3m out of insurance revenues totalling $42m in 2023. The Fitch- calculated combined ratio deteriorated to 103.4% in 2023 from 91.9% in 2022, due to a large loss in ASR Re's parametric line of business arising from the Moroccan earthquake in that year. In the same year, ASR Re generated $7.9m of future profit, which is embedded in the contractual service margin (2022: $4m).
Investment income made a meaningful contribution to earnings in 2023 from ASR Re's investment in highly-rated US dollar-denominated bonds.
Ratings
Fitch has published ASR Re's (ASR Re) Insurer Financial Strength (IFS) Rating of 'BBB+' (Good). The outlook is ‘Positive’.
ASR Re's rating reflects the group's moderate business profile and very strong capitalisation and leverage, says Fitch. The ‘Positive’ outlook reflects ASR Re's improving franchise and business profile as its business volumes and earnings grow following its first full year of operation in 2022.
Apart from financial performance, ASR Re’s major rating drivers include:
Very Strong Capitalisation: Fitch views ASR Re's capitalisation and leverage as very strong and a key rating strength. Based on 2023 results, it scored 'Extremely Strong' in Fitch's Prism Global model. Its enhanced capital requirement (ECR) ratio, calculated using the base of the Bermuda solvency capital requirement for class 3A insurers, amounted to 317% at end-2023, down from 609% at end-2022. Fitch expects ASR Re's capitalisation to weaken due to new business growth, but to remain 'Very Strong' in 2024.
Strong Retro Cover: Fitch views ASR Re's reinsurance, risk mitigation, and catastrophe risk management as strong and supportive of the rating. The company has various excess-of-loss covers in place for political violence and terror as well as property, energy, and construction lines of business, for example.
Business Profile: Fitch ranks ASR Re's business profile as 'Less Favourable' than that of other global reinsurers due to its small scale and limited operational record.