AM Best Revises Outlooks to Negative for Selecta Insurance and Reinsurance Company (Caribbean) Ltd.

AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of Selecta Insurance and Reinsurance Company (Caribbean) Ltd. (Selecta) (Saint Kitts and Nevis).

The Credit Ratings (ratings) reflect Selecta’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.

The negative outlooks reflect the volatility in Selecta’s historical underwriting results and the ongoing adverse impact of legacy business on performance, which increase uncertainty as to the company’s ability to produce operating results supportive of an adequate assessment as it executes its business plan.

Selecta’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects Selecta’s prospective BCAR scores to remain comfortably at the strongest level, supported by internal capital generation and controlled growth in line with its business plan. The company’s balance sheet strength assessment also considers the highly liquid investment portfolio and moderate dependence on retrocession. Selecta’s counterparty credit risk is mitigated partially through the use of a panel of international reinsurers of high credit quality. Offsetting factors include the company’s exposure to the high economic and moderate financial system and political risk in Saint Kitts and Nevis.

The operating performance assessment considers Selecta's business plan, as well as its historical performance. Selecta has a track record of adequate underwriting performance, supported by disciplined risk selection. However, the company’s technical results have been volatile due to individual large contracts with high loss ratios. In 2022, the company reported a combined ratio of 98%, based on the unaudited financial results. Prospective technical results remain exposed to volatility due to an evolving underwriting portfolio, in terms of lines of business and risk locations, as the company executes its business plan. Selecta’s net investment returns contribute modestly, albeit positively, to the company’s operating profitability, reflective of its conservative investment portfolio.

Selecta is a specialist facultative reinsurer that underwrites risks in multiple territories and lines of business. A material portion of the company’s premiums is derived from a group with a common shareholder, Sun Group MGA, which consists of several managing general agents. Given its relatively small scale, the company does not have an established profile in the international markets in which it operates. AM Best expects Selecta to grow its portfolio gradually in line with its business plan, supported by its underwriting capacity and by management’s experience.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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