OLDWICK, New Jersey – AM Best has assigned a Financial Strength Rating of B+ (Good) and a Long-Term Issuer Credit Rating of “bbb-” to East Caribbean Reinsurance Company Limited (ECRC) (Anguilla). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect ECRC’s balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
ECRC’s balance sheet strength is supported by risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). However, the company is relatively small with less than USD$ 10 million in equity, and it relies heavily on the strength of its retrocessionaires to manage its catastrophe exposure, minimize earnings volatility and protect surplus.
During its fiscal year-end 2018, ECRC’s capitalization was weakened, and total shareholders’ equity fell nearly 30 percent as a result of losses from hurricane Maria. Following this event, the company reduced its net retention on its catastrophe property treaties substantially.
The company was formed in 1998 with the initial purpose of being a captive reinsurance company for the TDC Group, a majority owner, by providing cost-effective pooled reinsurance arrangements to two affiliated insurers.
ECRC currently participates in treaty and facultative placements for various lines of property/casualty coverage to its affiliates in St Kitts and Nevis and Anguilla. The largest lines of business on a gross basis are property (92 percent) and motor (5 percent).
ECRC’s retrocession treaties allow it to write reinsurance business throughout the Eastern Caribbean bloc, which offers the opportunity for the spread of risk. The company plans to expand its presence in the region by offering coverage for treaty motor and facultative property risks, as it sees substantial opportunities for growth in the region for business that falls within existing treaties without increasing its net retained risk.
The above strengths are offset somewhat by the execution risk associated with expanding ECRC’s operations and the potential impact of continued soft market conditions on the business in which the company plans to participate, as well as the uncertainties and challenges that weakened economic conditions in the region. Although, the Eastern Caribbean is vulnerable to price changes in key commodities and highly dependent upon tourism.
While it has established relationships with several key participants in its target markets, ECRC’s ability to build and maintain market share profitably will have to be proven over time. Accordingly, AM Best will monitor ECRC’s performance closely against its stated business plan. Any negative deviations in terms of earnings or risk-adjusted capitalization could result in downward pressure on the assigned ratings.