NEW YORK (July 19, 2021) – Kroll Bond Rating Agency (KBRA) upgrades the insurance financial strength rating (IFSR) on Premia Reinsurance Ltd. to A from A-, upgrades the issuer rating on Premia Holdings Ltd. to BBB+ from BBB, upgrades Premia Holdings’ senior unsecured debt rating to BBB+ from BBB, and upgrades all of Premia Holdings’ subordinated debt ratings to BBB from BBB-. The Outlook for all ratings is Stable.
Key Credit Considerations
The rating upgrade is driven by Premia’s ongoing successful execution of its run-off reinsurance strategy. KBRA believes the company has quickly established itself as a credible competitor in a market dominated by a few established, well-known companies. Since 2017 Premia has clearly and consistently demonstrated to sellers of legacy liabilities that it can deliver innovative, client-oriented solutions. Under the leadership of a seasoned management team, Premia’s capital has grown to nearly USD800 million at end-Q1 2021 through retained earnings, capital contributions and a manageable amount of senior and subordinated debt. The company maintains sound risk-based capitalization in line with peers in the non-life legacy market. KBRA believes that Premia’s financial leverage of 31.2% at end-Q1 2021 is manageable and expects the company to prudently source additional debt capital when appropriate to support its continued growth. Premia generates fee income through its claims management subsidiary, Alan Gray LLC, and its lead operating company, Premia Re, has significant dividend capacity. These sources provide solid interest coverage for all debt outstanding. With a proven track record of accessing the traditional private debt and equity capital markets, Premia has further enhanced its financial flexibility through the formation of a sidecar, Elevation Re (SPC) Ltd. with up to USD265 million of third-party capital. KBRA believes that Elevation Re provides Premia with cost-effective, just-in-time capital for executing transactions as well as an additional source of fee income. A recent acquisition by Alan Gray will further enhance its service offerings, capacity and talent pool as well as materially increase fee income over the medium term, further diversifying Premia’s earnings. KBRA believes that Premia has a comprehensive enterprise risk management framework and processes across the entire organization. Extensive modeling and stress testing of individual transactions and the entire portfolio are performed to ensure that capital remains adequate, liquidity is sufficient to pay liabilities when due, and regulatory requirements are met. KBRA believes that Premia operates under conservative risk tolerances and guidelines.
Balancing these strengths is Premia’s exposure to potential adverse reserve development as KBRA believes that longtail casualty loss reserves are subject to a high risk of change over the life of the claim settlement process due to evolving societal, legal, and regulatory factors. In addition, KBRA believes that Premia’s future success remains highly dependent on the original management team, but expects the build out of the organization to over 200 run-off professionals across Bermuda, the US, Europe, the UK and Lloyd’s of London creates a foundation for appropriate succession planning.
Rating Sensitivities
Continued successful execution of its business plan and favorable capital and earnings trends could generate positive rating momentum although an upgrade is not expected in the medium-term. A significant change in risk profile or business strategy, material adverse loss development or investment losses, elevated financial leverage, or loss of a key member of the management team could result in a negative rating action.
To access ratings and relevant documents, click here.
Related Publications: (available at www.kbra.com)
▪ Insurer & Insurance Holding Company Global Rating Methodology
▪ ESG Global Rating Methodology
Analytical Contacts
Carol Pierce, Senior Director (Lead Analyst)
+1 (646) 731-3307
cpierce@kbra.com
Ethan Kline, Associate
+1 (646) 731-1278
ethan.kline@kbra.com
Peter Giacone, Managing Director (Rating Committee Chair)
+1 (646) 731-2407
peter.giacone@kbra.com
Business Development Contact
Tina Bukow, Managing Director
+1 (646) 731-2368
tina.bukow@kbra.com
Disclosures
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
About KBRA and KBRA Europe
Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority pursuant to the Temporary Registration Regime. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.