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KBRA Assigns A- Rating to Premia, a Bermuda Runoff Reinsurer

Stacks of gold coins under a red umbrella
February 15, 2018

Kroll Bond Rating Agency (KBRA) has assigned an insurance financial strength rating (IFSR) of A- to Premia Reinsurance, Ltd. (Premia), a class 4 Bermuda specialty reinsurer focused on acquiring non-life runoff liabilities. KBRA has also assigned an issuer rating of BBB to the organization's ultimate holding company, Premia Holdings, Ltd. (Premia Holdings). Premia and Premia Holdings are collectively referred to as Premia Re. Additionally, KBRA has assigned a rating of BBB to Premia Holdings' outstanding senior unsecured notes. The outlook for all ratings is Stable.

The ratings reflect Premia Re's sound capitalization, which KBRA believes is sufficient to support the company's planned acquisition strategy of runoff liabilities in the medium term. Part of Premia's capital consists of $110 million of senior unsecured notes due January 2024. Additionally, Premia Re's ratings benefit from the equity investment of Arch Capital Group, Ltd. (Arch Capital) (NASDAQ: ACGL), a 25 percent quota share reinsurance agreement between the companies, as well as underwriting, systems, and operational support from Arch Capital. Moreover, Premia Re's management team has extensive experience in the reinsurance market, especially in the runoff sector, and successfully closed on a number of transactions during the company's first year of operation. Premia Re acquires companies and portfolios in less volatile lines of business, eschewing property catastrophe exposure, and will maintain conservative financial leverage—currently 22 percent.
Balancing these strengths are the start-up nature of the company and the execution risk for Premia Re's management team as they enter a mature sector with established competitors. Although KBRA acknowledges that non-life runoff business has demonstrated favorable return characteristics that are largely uncorrelated to the overall financial markets, the potential still exists for runoff business to experience adverse reserve development. KBRA expects Premia Re to report a small operating loss in 2017, its first year of operations, and achieve profitability in 2018. Finally, key man risk exists in that Premia Re needs to continue to build out its management team over time to develop bench strength for succession planning.
The Stable outlook assessment reflects KBRA's expectations that Premia Re will continue to maintain sound capitalization while successfully executing its runoff acquisition strategy. Additionally, KBRA expects Premia Re to experience minimal credit losses in its investment portfolio, retain key members of its management team, and preserve financial flexibility through conservative balance sheet metrics.

Register for complimentary access to view KBRA's in-depth rating report for Premia Re, along with all of KBRA's latest ratings and research.

If you have any difficulties accessing the report, please email KBRA or visit its website.

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