22 November 2022Reinsurance

AM Best affirms Orion Re ratings

AM Best has affirmed the financial strength rating of B+ and the long-term issuer credit rating of “bbb-” of Bermuda-based Orion Reinsurance (Orion Re). The outlook of these credit ratings is stable.

The ratings reflect Orion Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

The ratings also reflect the company’s strongest risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio (BCAR), and the expertise of its management team. Partially offsetting these positive rating factors is the small size of the company, which limits business diversification given the inherent concentration risk.

Orion Re was founded in December 2004 and is licensed by the Bermuda Monetary Authority to act as a class III insurer without restrictions of any kind in its class. Orion Re’s main line of business is difference in conditions insurance, but the company also retains specific life and non-life insurance business. Orion Re has experience and recognition in the public services industry, as well as strategic alliances to support recognized Latin American reinsurers.

As of December 2021, Colombia represented 67% of the company’s gross written premium, with Peru and Mexico generating 14% and 8%, respectively, with the rest distributed in 12 other countries, primarily throughout Latin America and the Caribbean.

According to AM Best Orion Re’s growth has fluctuated over the past five years, which is consistent with the size of the company. Premium sufficiency has yet to be achieved; however, the company has maintained marginally profitable bottom-line results during most years, which are expected to improve as the company’s business expansion plan takes place. The results also are supported by income from the Rent-a-Captive business, which has presented a consistent flow over the past years.

The rating agency added that Orion Re’s risk-adjusted capitalisation, as measured by BCAR, has shown improvement since 2019, mainly as a result of a more conservative approach in the investment policies, which reduced asset risk. However, due to the company’s size and operation, the scores are sensitive to changes in its balance sheet structure, and the composition of Orion Re’s business portfolio.

AM Best said that it does not expect positive rating actions in the medium term. Negative rating actions could occur if premium growth, changes in the investment and/or underwriting risk profile, or deteriorating operating results reduce risk-adjusted capitalization to a level that no longer supports the ratings.