19 June 2023Analysis

AM Best places Cowen Re ratings under review

AM Best has assigned a financial strength rating of B++ (Good) and a long-term issuer credit rating of "bbb+" to Cowen Reinsurance. Concurrently, AM Best has placed these credit ratings under review with negative implications.

The ratings have been placed under review with negative implications due to the uncertainty regarding Cowen Re’s future ownership, given that AM Best does not expect the company to form a part of The Toronto-Dominion Bank's (TD Bank) long-term plans.

The rating agency said that the ratings reflect Cowen Re’s balance sheet strength, which it assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

Cowen Re’s balance sheet strength is supported by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio. AM Best expects Cowen Re’s risk-adjusted capitalisation to remain at the strongest level prospectively, supported by low underwriting leverage. An offsetting factor is the company’s limited quality of assets, due to its substantial holdings of intercompany loans and receivables. However, asset quality is expected to improve in 2023, as the company reduces its exposure to intra-group investments and loans.

In 2022, Cowen Re reported a pre-tax loss of $5.9 million (2021: $19.7 million profit). Since its start of operations in 2016, Cowen Re’s operating performance has been volatile. The cumulative pre-tax result since inception is a $6 million loss (as calculated by AM Best), with modest technical losses being offset partially by positive investment returns.

Cowen Re’s business profile assessment of limited reflects the company’s weak market position in a large and highly competitive international reinsurance market. Cowen Re’s gross written premium amounted to $24 million in 2022. The company writes non-life, short-tail business globally, with a focus in Europe and emerging markets. Following the company’s acquisition by TD Bank in March 2023, there is uncertainty regarding Cowen Re’s future business plan.