AM Best Affirms Credit Ratings of Scotia Reinsurance Limited
AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a+" (Excellent) of Scotia Reinsurance Limited (Scotia Re) (Barbados). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Scotia Re's balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management. The ratings also reflect rating enhancement from the company's sister entity, Scotia Insurance (Barbados) Limited (SIB), based on the transfer of the original block of business in 2017
Scotia Re is primarily a life reinsurance subsidiary that assumes non-Canadian business, largely from Mexico, South and Central America and the Caribbean, sourced through retail operations of the company's ultimate parent, The Bank of Nova Scotia (Scotiabank). The initial book of business was assumed in 2017 from SIB, which has a long history of favorable underwriting results. The assumed business produced favorable return metrics under Scotia Re after its third full year in operation despite challenges from operating within the COVID-19 pandemic environment. The company's balance sheet strength is bolstered further by the strongest level of risk-adjusted capitalization, reflecting in part a conservative short duration and highly liquid investment portfolio.
These strengths are offset partially by the company's dependence for growth on lending product originations in economies outside of Canada, many of which are deemed to have higher country risk profiles.
With a slowdown of the global economy from the COVID-19 pandemic,it is likely Scotia Re will continue to see a decline in assumed premiums in the near term. Furthermore, AM Best notes that despite the company managing capital to specific internal targets, which has kept absolute capitalization levels largely flat, Scotia Re could recapitalize in a stress scenario by adjusting its shareholder dividend payout.
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