AM Best Downgrades Credit Ratings of Sun Re Ltd; Places Credit Ratings Under Review With Negative Implications; Withdraws Credit Ratings

BY Business Wire | CORPORATE | 06/18/24 06:46 PM EDT

LONDON--(BUSINESS WIRE)-- AM Best has downgraded the Financial Strength Rating to B (Fair) from B+ (Good) and the Long-Term Issuer Credit Rating to ?bb? (Fair) from ?bbb-? (Good) of Sun Re Ltd (Sun Re) (Saint Kitts and Nevis). At the same time, AM Best has placed these Credit Ratings (ratings) under review with negative implications. Concurrently, AM Best has withdrawn these ratings as the company has requested to no longer participate in AM Best?s interactive rating process.

The ratings reflect Sun Re?s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).

The rating downgrades reflect Sun Re?s weakened balance sheet strength driven by challenges in sourcing investment alternatives to unrated affiliated counterparties as the company aims to derisk its investment portfolio. This resulted in concentrated allocations to unrated payment platforms in the second quarter of 2024, expected to remain until the company can transfer these funds into more traditional bank accounts. The ratings have been placed under review with negative implications to reflect pressures on the balance sheet strength and ERM assessments due to the execution risk associated with the restructuring of the company?s investment portfolio.

Sun Re?s balance sheet strength assessment factors in the company?s risk-adjusted capitalisation, as measured by Best?s Capital Adequacy Ratio (BCAR), which is expected to be at the strong level at year-end 2023, negatively impacted by increased investment charges applied in the model to reflect the significant concentration and credit risk associated with assets held through affiliated companies at the time. The assessment also considers the company?s moderate dependence on retrocession, and its exposure to the high economic and moderate financial system and political risk in Saint Kitts and Nevis.

Sun Re?s operating performance has been impacted negatively by volatile technical results in recent years, with a five-year average (2018-2022) combined ratio of 108.6% (as calculated by AM Best), due to individual large contracts with high loss ratios associated with legacy business. Unaudited results for 2023 indicate a return to technical profitability as the company has focused on underwriting discipline and risk selection. 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. Sun Re?s net investment returns contribute modestly, albeit positively, to the company?s operating profitability.

Sun Re is a specialist facultative reinsurer underwriting risks in multiple territories and lines of business. The company sources a material portion of its premiums from Sun Underwriting MGA, whose ultimate shareholder is the same as Sun Re?s. Given its relatively small scale, the company does not have an established profile in the international markets in which it operates.

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 specialising 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

Copyright ? 2024 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Source: AM Best

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.