11 October 2022EMEA analysis

AM Best affirms Stonefort ratings

AM Best has affirmed the financial strength rating of A- and the long-term issuer credit ratings of a- of Stonefort Reinsurance and Stonefort Insurance, both subsidiaries of HOCHTIEF Aktiengesellschaft, a large Germany-based construction company that is majority owned by ACS.

The outlook of these credit ratings is stable.

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

Stonefort Reinsurance’s balance sheet strength is supported by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects Stonefort Reinsurance’s risk-adjusted capitalisation to remain at the strongest level supported by low underwriting leverage. Offsetting factors in the balance sheet strength assessment include the company’s high level of retrocessions to a non-rated reinsurer and its significant investment allocation to bonds issued by its intermediate parent company, HOCHTIEF.

According to AM Best Stonefort Reinsurance has a track record of strong and stable operating performance, largely driven by robust underwriting results, as demonstrated by a five-year (2017-2021) weighted average combined ratio of 80.2%, as calculated by AM Best. Stonefort Reinsurance’s prospective performance is subject to volatility, mainly due to the company’s exposure to business associated with the cyclical US construction market.

Stonefort Reinsurance’s business profile assessment of limited reflects the company’s geographically concentrated portfolio of casualty risks that emanate from HOCHTIEF’s construction operations in North America, through its subsidiary. Additionally, Stonefort Reinsurance reinsures open-market business, including business emanating from its sister company, Stonefort Insurance. Stonefort Reinsurance’s volume of business partly recovered in 2021, as demonstrated by gross written premium (GWP) growth of 25%, underpinned by a recovery in HOCHTIEF’s North American operations, following a significant contraction in GWP of 36% in 2020. Stonefort Reinsurance’s GWP is expected to continue to grow during the period 2022-2024.

Stonefort Insurance was created in 2013 and provides insurance cover to third-party entities, specialising in the insurance for small and medium-sized enterprises, as well as for discretionary mutual companies. Stonefort Insurance’s ratings reflect its strategic importance to Stonefort Reinsurance as a source of business growth and diversification, as well as explicit support from Stonefort Reinsurance in the form of reinsurance protection and capital contributions.