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KBRA Affirms Ratings for Premia Reinsurance Ltd.

A businessman
February 14, 2020

Kroll Bond Rating Agency (KBRA) affirmed the insurance financial strength rating of A- for Premia Reinsurance Ltd., a Class 4 Bermuda specialty reinsurer focused on acquiring nonlife runoff liabilities. KBRA also affirmed the issuer rating of BBB for the organization's ultimate holding company, Premia Holdings Ltd. Additionally, KBRA affirmed the rating of BBB for Premia Holdings' outstanding senior unsecured notes. The outlook for all ratings is stable.

The ratings reflect Premia Re's sound capitalization, operating profitability, and seasoned management team. Premia Re's risk-based capital ratio is on par with, or above, its runoff peers. Additionally, Premia Re has generated net income each year since inception, inclusive of start-up expenses. Three transactions were finalized during 2019, with mutual agreements reached by year-end on two additional transactions, which are currently awaiting regulatory approval.

Premia Holdings' management team has extensive experience in the reinsurance industry and currently employs more than 100 professionals in the sourcing, structuring, and servicing of the legacy business it has acquired to date and its third-party fee business. Moreover, Premia Re benefits from a whole account quota share agreement provided by Arch Re, one of its founding sponsors. Premia Holdings maintains conservative financial leverage of roughly 20 percent as of September 30, 2019.

Balancing these strengths is 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 acknowledged that the property-casualty 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. Premia Holdings has somewhat mitigated this risk through the acquisition of Alan Gray LLC, a well-established and highly respected claim and audit service firm that provides a fee-based operating model that complements Premia Re's business strategy. Finally, while its initial capital raise was oversubscribed, the ability of the management team to source additional capital at favorable pricing and terms to support continued growth has yet to be tested.

The stable outlook reflects KBRA's expectation that Premia Re will continue to maintain sound capitalization while successfully executing its runoff acquisition strategy. Additionally, KBRA expects Premia Re to retain key members of its management team and preserve financial flexibility through conservative balance sheet metrics. The ratings are based on KBRA's Global Insurer & Insurance Holding Company Rating Methodology published on October 10, 2017.

Ratings, reports, and disclosures for Premia Reinsurance Ltd., and Premia Holdings Ltd. are available on the KBRA website.

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