Key Takeaways
- The key underlying drivers of creditworthiness are the same for both new and established insurance companies.
- We have compiled case studies to demonstrate how we apply our ratings methodology to newly established insurance and reinsurance companies.
- Some such companies are integral to a parent's strategy; others are spin-offs that have an established management team and back book. Insurance companies may also be set up to take advantage of favorable access to a niche sector and may have other unique features that support creditworthiness.
S&P Global Ratings does not consider every newly formed insurer to be a start-up. In our view, there are multiple factors that affect the creditworthiness of insurance companies and simply having a limited operating track record--that is, being a pure start up--does not necessarily cap our ratings. New insurers and reinsurers may have credit strengths that offset their more-obvious credit weaknesses. Our methodology gives us scope to apply our analytical judgement when assessing newly established insurers.
Our definition of a start-up insurer is a company that has a limited track record and short operating history. However, many new insurance entities can demonstrate a record of performance, derived via their management team or an inherited book of business. Some hire management teams that have experience in creating and growing successful insurance companies; some inherit a book of business from an established insurer. In other cases, a new entity has been spun off by an established insurer to serve a specific business purpose.
In our view, strong pricing oversight, combined with capital and risk management, is key to good financial risk management. Rapid growth at any insurer puts a strain on the balance sheet and can increase volatility in capital and earnings; this is typical at start-ups. However, we look for signs that the insurer has access to a promising pipeline of profitable new business in its sector and a strong balance sheet to support its creditworthiness.
Certain features, illustrated in the case studies below, may support the credibility of a new insurer's business plan and its creditworthiness. These include:
- An experienced and successful management team that has a proven track record,
- Robust governance,
- An integral part of a stronger parent,
- Unique features that offer sources of competitive advantage, and
- An holistic strategy that positions the company for future profitable growth.
Case Studies: Not All New Insurers Are Pure Start-Ups
Convex group was established with an experienced team
Convex Re. Ltd. launched its insurance operations in May 2019 and we assigned 'A-' ratings to its operating entities in December 2019. We did not view it as a start-up, because it had highly experienced management and underwriting teams with a strong track record, which allowed it to rapidly develop relationships with key distribution partners. These factors, combined with its clear strategy, helped it to win customers in target markets and execute on its ambitious growth plans. We also assessed Convex's capital adequacy at the strongest level.
Convex has grown significantly since 2019 and its underwriting performance has been slightly stronger than expected. At the end of 2023, it recorded its second year of underwriting profit and its first year of positive net income. In June 2024, we revised our outlook on the rating to positive from stable.
Fidelis rapidly built a credible position in its chosen lines
We first rated Fidelis Insurance Holdings Ltd. in December 2019. At that time, it was a relatively recent entrant to the global insurance and reinsurance markets, having been established in August 2014. Our initial rating on Fidelis' core operating entities was 'A-', supported by the overall strength of its balance sheet and the good standing it had already achieved in certain business lines. It had a strong management team and a proven track record. In July 2024, we revised our outlook on the rating to positive from stable to reflect the company's improving risk profile and strong operating performance.
ACR benefited from shareholder support and strong technical capabilities
When we first rated Asia Capital Reinsurance Group Pte Ltd. (ACR) at 'A-' in 2008, it had been operating for less than two years. We viewed the company as a start-up, but acknowledged management's strong technical capability, the company's strong capital position, and shareholder commitments to fund the planned growth. The business was already benefiting from growing brand recognition and diversifying business sources.
We downgraded ACR to 'BBB+' and withdrew our ratings in 2019, when the business was sold to Catalina Holdings (Bermuda) Ltd. and placed in run-off.
Endurance backed a focused underwriting strategy with extremely strong capital adequacy
Endurance Specialty Insurance Ltd. was founded in 2001 and rated at 'A-' in 2003, based on its extremely strong capital adequacy, good market acceptance, and experienced management team. In our view, Endurance's operating infrastructure and lack of legacy risks supported its focused underwriting strategy, with established exposure limits.
We upgraded Endurance's core operating subsidiaries to 'A' in 2006 because its competitive position had strengthened. The company was acquired by Sompo Holdings Inc. in 2017 and we upgraded the core operating entities to 'A+' in April 2018.
Resolution bought Lincoln Benefit Life Co. (LBL), an established entity, to help it expand into the U.S. market
Resolution Life Holdings Inc. purchased Lincoln Benefit Life Co. (LBL) in 2014, when both entities had established reputations in different sectors. Resolution was known for its expertise at consolidating closed book life insurance businesses. It bought U.S. life insurer LBL as a consolidation vehicle but had limited success in executing this strategy. We rated LBL at 'BBB+' when Resolution first bought it--by the time we withdrew our ratings in 2020, we had downgraded LBL to 'BBB'.
Korean Reinsurance Switzerland AG established by Korean Reinsurance Co. to expand its reinsurance business in Europe
Korean Reinsurance Switzerland AG (KRSA) was established by Korean Re in 2019 to grow its overseas reinsurance business in Europe. We equalize KRSA's long-term issuer credit and financial strength ratings of 'A' with our view of the group credit profile. This is because we expect KRSA to play a critical role in the group's international business strategy and become a regional hub in Europe in the mid-to-long term. We did not consider KRSA as a startup when we assigned the ratings in 2019, because KRSA inherited the group's expertise and clients.
BHF was spun off from MetLife Inc.
Brighthouse Financial Group (BHF) separated from MetLife Inc. in 2017 and focuses on the U.S. retail life and annuity market. Although BHF was newly launched, it was not a start up. Our 'A+' ratings on its core operating entities benefitted from its established relationships with most of its institutional and independent distributors, and management's commitment to maintaining very strong capital in the long term.
MedGulf KSA inherited an offshore insurer's portfolio of business in Saudi Arabia
Regulatory support of local incorporation prompted Mediterranean & Gulf Insurance & Reinsurance Co. B.S.C. to transfer its substantial portfolio of Saudi Arabian assets and liabilities to Mediterranean and Gulf Cooperative Insurance Co. (MedGulf KSA). It had been operating in Saudi Arabia on an offshore basis since 1972.
Although MedGulf KSA was newly established, our 2011 'A-' rating was based on its predecessor company's long-established business position, brand, and infrastructure. We withdrew the 'B' rating in 2020, after some years of governance-related issues, leading to capital adequacy pressures and temporary regulatory suspensions.
Wataniya gained access to renewal rights for a discontinued book of Saudi Arabian business
Wataniya Insurance Co. didn't buy an existing portfolio in Saudi Arabia; it inherited the renewal rights for the business previously written by Bahrain-based Saudi National Insurance Co., one of its then-core shareholders. This helped Wataniya build up its business more quickly, even in the highly competitive Saudi market. We did not regard Wataniya as a start-up when we assigned a 'BBB' rating to it in 2010. In 2024, we upgraded the company to 'BBB+'.
HDFC Life Re was incorporated to enable India-based parent HDFC Life to expand in the UAE
HDFC International Life and Re Co. Ltd. (HDFC Life Re) was incorporated in the United Arab Emirates (UAE) in 2016 to write life reinsurance business in the Gulf Cooperation Council region and across the Middle East. Although its business was in the early stages of development, we assigned it a 'BBB' rating in 2018. Our view was supported by the company's solid capital adequacy, abundant liquidity, and business growth and diversification plans. We considered HDFC Life Re's capital adequacy was sufficient to support its gradually increasing business volume.
Flood Re plays a unique role within the U.K. home insurance market
Flood Re Ltd. is a joint initiative between the U.K. insurance industry and the U.K. government. Its purpose is to improve the availability and affordability of flood insurance for eligible homes and to manage the transition to risk-reflective pricing for household flood insurance by 2039. Its revenue is sourced directly from insurance companies that write home insurance in the U.K. If needed, it has unfettered access to a top-up levy charged to the U.K. home insurance industry. This enhances its financial and capital positions.
The 'A-' ratings we assigned to Flood Re at its inception in 2016 factored in our expectation that the company would quickly build up its capital base. In 2020, we upgraded Flood Re to 'A', based on the success and effectiveness of the scheme and its continued balance sheet strength.
Saudi Re is the only domestic reinsurer in Saudi Arabia
At its inception in 2008, Saudi Re for Cooperative Reinsurance Co. was the only locally incorporated reinsurer in a marketplace where ceding premium to reinsurers outside the country incurred a 5% withholding tax. It also benefited from mandatory cessions from local insurers, though the regulations were not fully enforced at that time.
We rated Saudi Re at 'BBB+' in its first year of operations based on our expectation that its position in the market would offer it a significant advantage. We also factored in Saudi Re's broad-based and supportive shareholders and its strong capitalization. We withdrew our ratings on Saudi Re in 2018, at the issuer's request. In 2022, we assigned a rating of 'A-' to Saudi Re as it strengthened its competitive position, achieved profitable growth, and diversified by expanding both locally and internationally.
ALReI and ACRAI were both established to support the U.K. pension reinsurance business of their parent
Athene Life Re International Ltd. (ALReI) and ACRA International (ACRAI) are both subsidiaries of Athene Holding Ltd., which recently made a strategic move into the U.K. pension market. ALReI was established as the reinsurer for the group's U.K. pension business and it, in turn, retrocedes certain U.K. pension transactions to ACRAI. Neither of these entities were viewed as start-ups when we first rated them in 2020. We consider them both to be core to the Athene group. They are rated 'A+'.
China Re HK is critical to China Re Group's plans for overseas expansion
China Reinsurance (Group) Corp. set up China Reinsurance Hong Kong Co. Ltd. (China Re HK; a 100%-owned subsidiary) in 2019. In our view, China Re HK is core to the China Re Group and plays a critical role in the group's strategy to expand into overseas life reinsurance markets. The parent already has established relationships with Hong Kong-based primary life insurers; China Re HK has been able to use these to support its growth. We therefore assigned a rating of 'A', equalized with our assessment of the parent's group credit profile, in 2019.
SRCSMX's parent committed to offering long-term support via reinsurance
Swiss Re Corporate Solutions Mexico (SRCSMX) was established in Mexico in 2018 by Swiss Re Corporate Solutions Ltd. (SRCS). Most of its underwriting is direct; reinsurance forms a smaller part of its business. Most of the premium from SRCSMX is ceded to its parent company. We view SRCSMX as key to its parent's ongoing strategic plan to expand its operations in high-growth markets. Even though we anticipated that its contribution to group income and capital would be small, the high use of reinsurance demonstrates that SRCS has committed to offering long-term support. We anticipate that SRCS will provide timely financial support to fund the growth of its subsidiary, as well as in the event of financial stress.
We assigned SRCSMX a Mexico national scale rating of 'mxAAA' in 2018.
L&G Re was established to support its parent's international diversification agenda
The 'A+' rating we assigned to the newly formed Legal & General Reinsurance Co. Ltd. (L&G Re) in 2015 was one notch below the ratings on its parent's core operating entities. L&G Re was involved in executing the parent's international diversification agenda, and had close operational, strategic, and financial integration with the rest of the group. Its role in helping the group expand in the international longevity risk transfer market made L&G Re a highly strategic subsidiary of the Legal & General Group.
We upgraded L&G Re to 'AA-' in February 2021, in line with the ratings on the group's core operating entities. It had, by then, become integral to expanding the group's international pension risk transfer business.
Creating A Competitive Advantage Is Key
To an extent, successfully launching a new insurance company depends on finding a way to create a competitive advantage in a sector that depends on trust and financial security. This may be achieved by harnessing the experience of existing management and underwriting teams, or the insurer's unique position, to distinguish itself from the crowd. Some start-up insurers establish a market presence, despite strong competition from incumbents, by exploiting attributes that give them access to niche sectors or provide access to additional financial support. Those that are members of an established group may draw on shared branding and the support of the group. In such cases, we may incorporate group support in our ratings on a new insurer, depending on our view of the subsidiary's strategic importance to and integration with the parent.
Related Criteria
- Insurers Rating Methodology, July 1, 2019
- Group Rating Methodology, July 1, 2019
Related Research
- When Is A Start-Up Insurer Not A Start-Up Insurer?, Sept. 2, 2019
This report does not constitute a rating action.
| Primary Credit Analyst: | Simon Ashworth, London + 44 20 7176 7243; simon.ashworth@spglobal.com |
| Secondary Contact: | Mark Button, London + 44 20 7176 7045; mark.button@spglobal.com |
| Research Contributor: | Ami Shah, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai |
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