OLDWICK, N.J.--(BUSINESS WIRE)--#insurance--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a" (Excellent) of RoyalStar Assurance Ltd. (RSA) (Nassau, The Bahamas). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect RSA's balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
RSA has the strongest level of risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR). The BCAR also remains assessed at strongest on a catastrophe-stressed basis, which indicates that some level of stability should be maintained through potential tail-risk events. However, the company has a high dependence on reinsurance to manage capital exposure to catastrophic events, as is typical of Caribbean insurers. RSA holds appropriate protection from catastrophic events with high-quality reinsurers. Capital growth has been hampered by the payment of dividend to transfer assets from RSA to the holding company. RSA's invested assets are conservative with short-term deposits and fixed income securities comprising over half of invested assets at year-end 2023. The remainder of investments are held in equities and a real estate holding company. RSA is limited to Bahamas-domiciled investments that can impact its ability to manage investment quality. RSA has low financial leverage, driven by a bank loan and the issuance of preference shares a few years ago.
RSA's operating performance remains strong as seen by consistent operating income in four of the last five years supported by favorable underwriting results and increasing investment income, a trend which continued in 2024. Furthermore, the company's return-on-equity metrics have remained in the low- to mid-teens. Gross premiums written have increased, driven by rising property rate increases as well as modest expansion in the Cayman Islands and U.S. Virgin Islands.
RSA's business profile is limited. More than 60% of business is written in the Bahamas, followed by the Cayman Islands at almost 20%, presenting geographic concentration risk. Material geographic expansion is limited based upon reinsurance capacity constraints in the region. RSA offers a number of general insurance products through a network of agents and brokers in several Caribbean territories.
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