DBRS Morningstar Assigns a Financial Strength Rating of “A” to Awbury Insurance Ltd; Stable Trend

DBRS Limited (DBRS Morningstar) assigned a Financial Strength Rating of “A” to Awbury Insurance Ltd. (Awbury or the Company). The trend is Stable.

KEY RATING CONSIDERATIONS
The assigned rating and Stable trend reflect the Company’s evolving and diversified franchise, strong earnings ability, resilient liquidity position, and sound regulatory capital levels. Awbury is an internationally diversified underwriter of specialty insurance that tends to generate better underwriting profitability than conventional property and casual (P&C) insurance companies, in part because of the pricing flexibility of its specialty lines and products. The Company has limited exposure to market risk because it does not have any material investments in bonds or equities. The Company relies heavily on its reinsurance arrangements, which are structured, in most cases, to eliminate Awbury’s counterparty credit risk to its reinsurers for potential claims, which is a positive for its liquidity. There is a small exposure to credit risk because of the significant amount of commission receivables on its balance sheet as a result of the Company's heavy reliance on reinsurance. Awbury had no subordinated debt on its balance sheet as at YE2021, resulting in a leverage ratio of 0%. The Company maintains a very strong regulatory capital position, which DBRS Morningstar views positively.

RATING DRIVERS
The rating would be upgraded if Awbury materially improves its scale with less reliance on the Fund Opportunities business for revenue generation while maintaining strong capital ratios.

Conversely, the rating would be downgraded if there were a material operational misstep resulting in reputational damage or a sustained deterioration in either overall earnings ability or capitalization.

RATING RATIONALE
The Company is domiciled in Bermuda with affiliates located globally, including in the U.S., Singapore, and London. The distribution of premiums written is diversified geographically, with the Company generating revenue from the U.S., Europe, Canada, Australia, and Asia. Awbury provides its clients with comprehensive specialized insurance and capital solutions across a range of complex credit and investment products as well as economic and financial risks.

Awbury has managed operational risk exposures well, evidenced by the Company's successful operation in respect of risks associated with multiple jurisdictions and its capacity to respond to changing market and regulatory conditions. Business is supported by a strong reinsurance program structure that has historically been primarily facultative, however, the Company has executed a number of reinsurance treaties over the last year.

A significant portion of the revenue Awbury generates is from commission received from reinsurance ceded. Because of Awbury’s highly specialized product offerings, premium volumes are lower compared with those of traditional P&C insurance companies that write flow business. However, the Company’s profitability, as measured by ROE, is well above that of its peer group. The three-year weighted-average ROE was substantially higher than the P&C insurance industry average for the three calendar years up to 2021, which is indicative of the Company's strong earnings ability.

Awbury does not offer traditional property insurance products so it has no first-order exposure to weather-related catastrophic events that could place a demand on liquidity because of large weather-related property losses. The Company maintains a reinsurance program that mitigates the potential impacts of claims severity because the majority of premiums written are ceded to reinsurance counterparties. The majority of claims obligations are paid directly by its reinsurers to the insured party, which is positive for the Awbury's liquidity.

DBRS Morningstar assessed the capitalization of Awbury as Strong/Good. The Company has no debt or leverage at the operating or group level, resulting in a leverage ratio of 0%. The lack of debt outstanding gives Awbury financial flexibility to access the capital markets, if needed. Overall, Awbury is significantly capitalized, with available capital well above the required regulatory minimums set by the Bermuda Monetary Authority.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

The Grid Summary Grades for Awbury Insurance Ltd. as follows: Franchise Strength—Moderate; Risk Profile—Good; Earnings Ability—Strong/Good; Liquidity—Strong/Good; Capitalization—Strong/Good.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Insurance Companies and Insurance Organizations (July 16, 2021; https://www.dbrsmorningstar.com/research/381667). Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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