Fitch Ratings has upgraded
The Rating Outlook is Stable.
Key Rating Drivers
Today's rating action reflects Enstar's strong long-term financial performance driven by net ultimate non-life runoff loss/loss adjustment expenses (LAE) reserve reductions, and very strong capitalization, with continued reasonable financial leverage. Enstar's ratings also reflects the company's solid business franchise acquiring and managing non-life runoff companies. Offsets to these positives include the company's risk profile, which is potentially subject to change based on future acquisitions and capital needs, and considerable exposure to long-tailed reserves.
Enstar's operating earnings are primarily driven by reductions in the net ultimate non-life runoff loss/LAE reserves. Over the most recent five-year period (2017-2021), Enstar reduced its estimates of net ultimate prior-period losses/LAE in its non-life runoff business by
Enstar's most recent five-year average (2017-2021) ROE was a very strong 13.8%. The company posted
Capital remains solid, with shareholders' equity of
Enstar's financial leverage ratio (FLR) was reasonable at 24.1% as of
Fitch views Enstar's overall business profile as moderate compared with other non-life (re)insurance organizations, maintaining a leading position in its core non-life runoff (re)insurance operations, with a very experienced, disciplined and highly knowledgeable management team. Enstar has been successful with its runoff acquisition strategy, generating favorable returns and significant growth in book value per share. In 2020/2021, Enstar exited its active underwriting platforms of
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 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%; or a fixed-charge coverage below 6.0x.
Enstar's hybrid securities ratings could also be lowered by one notch to reflect higher nonperformance risk should Fitch view
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 '
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