Fitch Ratings has affirmed
The Rating Outlook is Stable.
Fitch's rating affirmation reflects Enstar's solid business franchise acquiring and managing non-life runoff companies, strong profitability derived from consistent favorable reserve development, very strong capitalization and reasonable financial leverage. Offsets to these positives include the company's runoff risk profile.
Key Rating Drivers
Moderate Company Profile: Enstar has a moderate company profile, maintaining a leading position in its core non-life runoff (re)insurance operations. Enstar has been successful with its runoff acquisition strategy, generating favorable returns and significant growth in book value. Offsetting this, the risk profile is potentially subject to change based on future acquisitions and capital needs, with considerable exposure to long-tailed reserves.
Reserve Reductions Drive Earnings: A key source of Enstar's positive performance is its ability to ultimately settle reserves below acquired fair value through both effective claims management and commutations. Over the most recent five-year period (2018-2022), Enstar reduced its estimates of net ultimate prior-period losses/loss adjustment expenses (LAE) in its non-life runoff business by
Strong Earnings: Enstar's most recent 10-year average (2013-2022) ROE was a strong 11.4%. The company posted a net loss of
Very Strong Capitalization: Capital remains solid, with shareholders' equity of
The decline reflects a 20% drop in available capital driven by net unrealized losses on fixed-income securities. Enstar has the ability to hold bonds to maturity; therefore, is not expected to realize investment losses, except under a stress liquidity event.
Moderate Financial Leverage; Strong Coverage: Enstar's financial leverage ratio (FLR) was in line with the rating category at 25.7% as of
Fixed-charge coverage improved to 5.5x in 2022 and 5.8x in 2021 from a lower 4.1x in 2020 and 2.4x in 2019, as these years were affected by
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Failure to generate strong earnings from continued material levels of favorable non-life runoff reserve development;
Failure to maintain a score under Fitch's Prism factor-based capital model of at least a solidly 'Very Strong';
Significant new transaction(s) that Fitch views as materially increasing the overall risk profile;
Net leverage ratio above 2.5x;
FLR above 25%;
Fixed-charge coverage below 6.0x;
Hybrid securities ratings could also be lowered by one notch to reflect higher nonperformance risk should Fitch views
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch views a potential upgrade as unlikely due to the nature of the company's business model in acquiring large blocks of runoff business that can materially alter the company's balance sheet. While this risk has been managed well to date, it adds potential near-term capital, earnings and business/exposure mix variability at levels greater than experienced by most insurers operating under more traditional business models.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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