KBRA Affirms Ratings of Premia Re and Premia Holdings

KBRA affirms the A insurance financial strength rating (IFSR) on Premia Reinsurance Ltd. (Premia Re). KBRA also affirms the BBB+ issuer rating on Premia Holdings Ltd. (Premia Holdings) as well as the BBB debt ratings on Premia Holdings’ subordinated notes. Collectively, the companies are referred to as Premia. The Outlook for all ratings is Stable.

Key Credit Considerations

The ratings reflect Premia’s strong risk-based capitalization, manageable financial leverage with strong interest coverage, financial flexibility and access to contingent capital, seasoned management team, strong enterprise risk management and favorable operating results. At the end of 2023, the group’s BSCR coverage ratio was 211% (2022: 219%), while Premia Re’s was 366% (2022: 384%). On a US GAAP basis, at year-end 2023, Premia Holdings’ debt/capital was 34.3% (2022: 34.8%), essentially flat year-over-year with the unwind of unrealized losses on the fixed income portfolio offset by adverse loss reserve development. Removing the impact of AOCI losses, consistent with Premia Holdings’ debt covenants, debt/capital was 30.6% (2022: 29.0%). Given the material balance of unrestricted cash at the holding company, solid service fee income, and significant dividend capacity from Premia Re, KBRA believes that Premia Holdings’ debt service coverage is strong. Premia has a proven track record of prudently accessing capital from banks as well as the private debt and equity markets. Premia can also utilize contingent capital from its strategic sponsor via reinsurance support. Premia is led by an experienced team of professionals with significant underwriting, structuring, claims, and investment expertise backed by a growing staff across its platform. KBRA believes that Premia has a comprehensive, and continually evolving, enterprise risk management framework. The group performs extensive modeling and stress testing of individual transactions as well as the entire portfolio to ensure that capital remains sound, liquidity is strong to pay liabilities when due, and regulatory requirements are met. KBRA believes that Premia operates under conservative risk tolerance and guidelines. Premia Re has reported net income each year since inception, totaling $197.2 million through the end of 2023. Despite an underwriting loss of $27.1 million during 2023, driven by $32.6 million in net unfavorable loss reserve development, Premia Re reported $34.1 million net income for the year. Based on a strong pipeline and Premia’s consistent, conservative approach to the business, KBRA believes that Premia Re should be able to continue its track record of positive net financial results. Balancing these strengths are current legacy market dynamics and potential adverse reserve development. While KBRA notes that the nominal dollar amount of legacy reserves continues to grow, it also notes that the number of legacy acquirers has been shrinking over the recent past. Based on recently announced deals, the trend appears to be toward fewer, larger deals making the acquisition of legacy liabilities even more uneven than it inherently is. In addition, recent bid/ask spreads have made it hard to close deals without a catalyst. Long-tailed reserves, such as those assumed by Premia, are exposed to a high risk of change due to evolving societal, legal, regulatory, and macroeconomic environments over the life of the claims settlement process.

Rating Sensitivities

Sustained favorable capital trends, reduced financial leverage, and sustained favorable loss reserve development could result in a positive rating action. An adverse change in risk profile, continued adverse loss development, material realized investment losses or elevated financial leverage could result in a negative rating action.

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Methodologies