KBRA Affirms All Ratings for Somerset
12 Aug 2025 | New York
KBRA affirms the A insurance financial strength ratings (IFSRs) for Somerset Reinsurance Ltd. (Somerset Re) and Somerset Reinsurance Company. KBRA also affirms the BBB+ issuer rating for Somerset Holdings International Ltd. (Somerset Holdings). The companies are collectively referred to as Somerset. The Outlook for all ratings is Stable.
Key Credit Considerations
The ratings reflect Somerset’s well capitalized balance sheet, robust profitability profile, comprehensive ERM framework, high credit quality investment portfolio, strong asset-liability matching, balanced reserve mix, seasoned management team and ample access to capital. Somerset Re’s yearend 2024 capital position was strong with a 228% BSCR coverage ratio and $1.2 billion of liquidity on its balance sheet. In 2024, Somerset Re reported robust IFRS-17 insurance service and combined (insurance-plus-investment) margins of 28.3% and 32.0%, respectively, supported by favorable claims experience and sizeable Contractual Service Margin (CSM) amortization. KBRA believes that Somerset’s increase in gross balance sheet leverage to 13.6x (2023: 13.1x) was in line with its strategic growth targets and supported by its capital and liquidity positions. The modest decrease in ROE to 12.6% (2023: 13.4%) reflected the timing of equity deployment from a material capital contribution from Aquarian early in 2024. KBRA expects Somerset Re to maintain strong margins as the company continues to scale. KBRA believes that ERM is maturing in line with the growth of the company and regulatory requirements.
As of yearend 2024, KBRA considers Somerset’s investment portfolio to be of high credit quality. Approximately 94% of fixed-income market value was in investment grade securities. KBRA also considers investment risk to be moderate. Interest-rate risk was meaningful given the 8-year duration, but convexity was low, and Treasury/agency holdings provided additional rate-hedging. Credit risk was well dispersed across sectors and securitized sleeves were largely in senior tranches. Liquidity risk was low-to-moderate as public bonds dominated, although the private-credit sleeves introduced some funding lock-up. Overall, KBRA believes that the investment portfolio profile at the end of 2024 was consistent with a conservative, income-focused life-reinsurer, carrying measured spread and reinvestment risk.
Somerset’s ALM position as of December 31, 2024, was 0.6 years short on a dollar-weighted Key Rate Duration basis, underscoring tight asset liability matching. Somerset targets a well-balanced split between annuity and life liabilities to maintain a well-diversified balance sheet. As of December 31, 2024, the actual split on $15.2 billion of gross liabilities was 54% life, 43% annuities, 1% longevity and 2% asset only.
Somerset Re has an experienced management team with proven ability and a track record of being able to close complex reinsurance transactions. The team has deep experience in life and annuity (re)insurance as well as extensive experience in other complementary areas of financial services.
Balancing these strengths are single-sponsor dependency and execution risk. Over the medium term, until Somerset reaches further scale and can consistently generate capital internally to meet its business plan, Somerset remains reliant on Aquarian for growth capital, underscoring a single sponsor dependency that could limit financial flexibility if sponsor appetite wanes or is diverted to other acquisitions as Aquarian scales its Aquarian Insurance Holdings platform. As Somerset scales its business while maintaining its solvency and liquidity targets, meets Bermuda’s enhanced CP2 requirements, and integrates its operations into the broader Aquarian Insurance Holdings platform, it faces execution risk. KBRA believes that Somerset’s strong and evolving ERM infrastructure should help management mitigate the downside to the challenges that lie ahead.
Rating Sensitivities
Sustained double-digit ROE, combined margin consistently above benchmarks, continued development of the group’s US platform and/or material synergies from the Aquarian Insurance Holdings platform benefiting Somerset could result in positive rating action.
An adverse change in risk profile, sustained BSCR coverage ratio below company target, material drop in liquidity without credible remediation, sustained drop in combined margin below benchmarks and/or diminished support from Aquarian with elevated financial leverage at Somerset Holdings introduced as a replacement could result in a negative rating action.
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