21 April 2023Analysis

AM Best affirms Castel performance ratings

AM Best has affirmed the Performance Assessment (assessment) of PA-2 (Excellent) of Castel Underwriting Agencies and its subsidiary, Castel Underwriting Europe. The outlook of the assessment is stable.

According to AM Best the assessment reflects Castel’s ‘excellent underwriting capabilities, excellent governance and internal controls, excellent financial condition, excellent organisational talent and excellent depth and breadth of relationships.’

Castel, through its model of investing in early-stage managing general agents (MGAs) and underwriting teams (or underwriting cells) on its club-style MGA platform, has access to expert and experienced underwriters. Underwriting capabilities further benefit from Castel’s in-house underwriting staff.

The rating agency said that since launching in 2014, Castel has demonstrated its ability to grow its underwriting cells whilst providing profitable business to its capacity providers. A partially offsetting factor to the component is the limited track record of some of Castel’s programmes.

Castel’s governance and internal controls benefit from its scale, relative to many other delegated underwriting authority enterprises (DUAEs) in the market. The company has an appropriate committee structure, including a board of directors featuring independent and non-executive directors, supported by a number of other committees. The company undergoes external reviews and performs internal reviews regularly, covering underwriting and compliance. Whilst relatively commonplace in the U.K., Castel’s limited integration of systems with (re)insurance partners is considered a partially offsetting factor to the governance and internal controls component.

Castel’s financial position is supported by its consistently profitable operations since inception. Overall earnings benefit from the broad range of programmes underwritten by the company, reducing dependence on any single one. The acquisitive nature of Castel’s business model is expected to lead to variable financial resource requirements over time; however, AM Best expects this to be well-managed by the company to avoid undue strain on Castel’s financial condition. Castel’s ownership by Arch Capital Group Ltd. is considered a positive to the company’s financial condition and provides a potential avenue for additional financial resources.

Castel offers a range of programmes in its core markets in the United Kingdom and Europe, as well as internationally. The company has relationships with a high number of well-rated capacity providers. A significant portion of Castel’s processed premium is placed with capacity providers that have supported Castel for at least four years.

As a wholly owned subsidiary, CUE’s operations exhibit a number of commonalities with Castel. CUE is regarded as strategically and financially important as the group’s European platform, providing access to business in the European Economic Area. CUE is integrated with Castel and has common underwriting practices, with generally consistent underwriting performance expected.