15 July 2016Analysis

AM Best affirms financial strength of Ocean Re

Rating agency AM Best has affirmed the financial strength rating of A- (Excellent) of the Barbados-based reinsurer, Ocean International Reinsurance (Ocean Re). The outlook for each rating remains stable.

According to AM Best, the affirmation of the ratings is based on the company’s strong risk-adjusted capital, geographic diversification, sound business strategy and good operating performance.

Partially offsetting these positive rating factors are the susceptibility of its captive business to regulatory changes and the still-developing claims experience from its traditional reinsurance business.

Ocean Re offers facultative programs that are fully funded to the expected ultimate losses by the company’s clients.

The company’s business development strategy clearly identifies an increase in the proportion of traditional reinsurance in its portfolio, as compared to its captive portfolio; however, AM Best has said regulatory changes remain a factor when evaluating the continuity of its fully funded programs, as legislative adjustments could potentially limit its premium growth.

Ocean Re’s risk-adjusted capitalisation remains strong and has benefited from its positive operating performance. In addition, a capital contribution that is expected to take place in July 2016, along with a conservative dividend policy, continues to strengthen AM Best’s future view of the company’s development of capitalisation and overall financial strength.

The operating performance of Ocean Re is good, with premium sufficiency derived from the nature of its captive business, as well as from an adequate retrocession program for its traditional reinsurance lines.

According to AM Best, Ocean Re’s underwriting performance has remained on good levels despite an increase in claims in 2015 from one client, for which the company has made adjustments. As a result, the company expects to improve its underwriting results in 2016.

Positive rating actions may take place if the company is able to maintain a healthy traditional reinsurance portfolio and further diversify its revenue sources while sustaining a sound retrocession program and current risk-adjusted capitalisation metrics.

Negative rating actions could take place if there are significant business disruptions on its captive business or if traditional reinsurance underwriting shows poor operating performance to levels that affect the capital position of the company.