KBRA Affirms IFSR for Prospero Re Ltd.
4 Jun 2024 | New York
KBRA affirms the A Insurance Financial Strength Rating (IFSR) for Prospero Re Ltd. (Prospero Re). The Outlook for the rating is Stable.
Key Credit Considerations
The rating reflects the company’s strong risk-based capitalization, conservative underwriting leverage, high credit quality investment portfolio, strong liquidity profile, well-diversified underwriting portfolio, seasoned management team, favorable accident year results over the past five years, and a return to calendar year profitability in 2023. Prospero Re’s Bermuda Solvency Capital Requirement Coverage Ratio was 389% which KBRA believes compares favorably to peers. KBRA views both premium and reserve leverage as modest given the current collateralized nature of most of Prospero Re’s catastrophe reinsurance contracts. Prospero Re has a limited appetite for investment risk, reflected in 86% of the company’s cash and invested assets being held in cash and money market funds at end-2023. Prospero Re assumes US, specialty, and global quota share reinsurance as well as specialty and property catastrophe reinsurance from both unrelated and related entities. The company continuously looks for market dislocations that to its portfolio diversification. Prospero Re’s underwriting and actuarial teams have extensive experience in the Bermuda and London markets as well as catastrophe modeling. KBRA believes that this collective expertise, along with increasing management alignment within the overall RGP organization, is pivotal to Prospero Re’s successful transition to a levered reinsurer. Accident year combined ratios have trended favorably over the most recent five-year period and have stabilized in the 70% range.
Balancing these credit strengths are a nascent formal governance and risk management framework and limited market presence. In March 2024, a formal governance and risk management framework was adopted by Prospero Re’s Board. KBRA views favorably the work done during 2023 to get the framework in place but expects the company to embed the framework into all decision-making over the medium term and to continue to make further enhancements in line with the company’s maturation. Prospero Re is a small competitor in the global reinsurance industry and may be constrained to write open market reinsurance against its balance sheet due to minimum counterparty size requirements of cedants. In addition, Prospero Re faces increased competition from other collateralized reinsurers that are also adjusting their business models to write business against their balance sheets.
Prospero Re is a Bermuda Class 3A segregated accounts company that is a wholly owned subsidiary of Resolute Global Partners, Ltd. (RGP). RGP is an SEC-registered investment advisor focused on insurance-linked assets for institutional investors. Prospero Re transforms reinsurance contracts into investment securities for its affiliate, The 1609 Fund Ltd., and provides reinsurance to the insurance operating subsidiaries of its affiliate, Producer’s National Corporation. Prospero Re also supports its affiliate, Lloyd’s Corporate Member (RGP), by providing a portion of the member’s Fund’s at Lloyds to support the syndicate’s underwriting activities.
Rating Sensitivities
Favorable capital and earnings trends as well as enhancements to the governance and risk management framework in line with the company’s maturation could result in positive rating action. Adverse change in risk profile, loss of a member of the management team and deterioration of risk-based capitalization below targets provided to KBRA could result in a negative rating action.
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