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Fitch Affirms One Re's IFS at 'BBB-'; Outlook Stable
April 21, 2017 / 4:04 PM / 8 months ago

Fitch Affirms One Re's IFS at 'BBB-'; Outlook Stable

(The following statement was released by the rating agency) LONDON, April 21 (Fitch) Fitch Ratings has affirmed UK-based One Re Ltd's (One Re) Insurer Financial Strength (IFS) Rating at 'BBB-' with a Stable Outlook. KEY RATING DRIVERS The affirmation reflects One Re's strong capitalisation, the strong regulatory environment in the UK and the company's experienced management team with a strong track record in African insurance markets. The rating is limited by the company's start-up nature, small size and scale and weak profitability. However, we expect profitability to improve as the company grows. One Re is a small, specialised London-based reinsurer underwriting short-tail non-life risks in sub-Saharan Africa. It began underwriting in 2015 following its authorisation in the UK. At end-2016 the company reported gross written premiums (GWP) of just USD2.5 million, shareholders' funds of USD38 million and total assets (excluding reinsurance assets) of USD42 million. One Re is targeting a portfolio of 50% fire and engineering lines and 50% of all other lines, but portfolio diversification was still low in 2016, with fire and engineering accounting for 95% of GWP. One Re underwrites risks covering 27 countries, but in practice geographical diversification is limited, with the top four countries accounting for 66% of GWP. One Re's regulatory solvency is strong, with a Solvency II coverage ratio (including a voluntary capital add-on) of 254% at end-2016. Fitch expects capitalisation to decline as the company grows, but to remain resilient and a rating strength. One Re follows a capital policy of maintaining solvency capital requirement (SCR, including the capital add-on) coverage of at least 125%, and Fitch expects net written premiums-to-equity to not exceed 2x (2016: zero). In 2016 One Re's premium income was insufficient to cover costs. One Re's GWP of USD2.5 million did not cover administrative expenses of USD3.1 million; in addition, net earned premiums were only at USD20,000 due to expenses for non-proportional reinsurance cover. This low revenue base and unfavourable FX developments led to a net loss of USD1.9 million (2015: USD5.1 million loss). However, Fitch expects One Re to be able to significantly increase its premium income by end-2018, allowing the company to at least break even. Fitch regards One Re's investment risk as moderate. The company's investment portfolio is dominated by two real estate investments in the City of London (54% of invested assets at end-2016) and cash (21%). The remainder consists of an investment mandate investing in a mix of short-term US dollar denominated corporate investment-grade bonds, short-duration high-yield bonds and money market funds. Overall, the portfolio has an average rating of 'BBB'. One Re limits its exchange rate risk by underwriting predominantly US dollar denominated policies and investing in assets backing insurance liabilities in US dollars. Its head office operating expenses are sterling, creating some exchange rate risk, but this is partly offset by the sterling income from its London real estate investments. RATING SENSITIVITIES An upgrade is unlikely in the near term given the company's start-up nature and small size and scale. However, profitable growth over time, demonstrating a proven business model, could lead to an upgrade, provided the company maintains strong capitalisation, with SCR (including the capital add-on) coverage of at least 125% and net written premiums-to-equity below 2x. The rating would be downgraded if One Re's business model proves to be unsustainable, as evidenced by material losses in 2018, combined with Fitch expectations that losses would continue beyond 2018. Significantly weaker than forecast premium growth could also lead to a downgrade. Additionally, SCR (including the capital add-on) coverage below 125% or net written premiums-to-equity above 2x could lead to a downgrade. Contact: Primary Analyst Ralf Ehrhardt Director +44 20 3530 1551 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Willem Loots Senior Director +44 20 3530 1808 Committee Chairperson Harish Gohil Senior Director +44 20 3530 1257 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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