DBRS Morningstar Assigns Issuer Rating of “A” to Awbury Insurance Ltd., Confirms Financial Strength Rating at “A;” Both With Stable Trend

DBRS Limited (DBRS Morningstar) assigned an Issuer Rating of “A” to Awbury Insurance Ltd. (Awbury or the Company) and confirmed the Company’s Financial Strength Rating at “A.” The trend on both ratings is Stable.

KEY RATING CONSIDERATIONS
The ratings and Stable trend reflect the Company’s evolving franchise, strong earnings ability, resilient liquidity position, and sound regulatory capital levels. Awbury is an internationally diversified underwriter of specialty insurance that tends to underwrite fewer contracts but generate better underwriting profitability than conventional property and casualty (P&C) insurance companies, in part because of the underwriting flexibility associated with 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. Awbury relies heavily on reinsurance arrangements, which are structured, in most cases, to reduce the Company’s counterparty credit risk exposures to those reinsurers, thereby improving its risk profile and 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 significant reliance on reinsurance. Awbury had no subordinated debt on its balance sheet as at YE2022, resulting in a nil leverage ratio. The Company maintains a strong regulatory capital position, which DBRS Morningstar views positively.

RATING DRIVERS
The ratings would be upgraded over the longer term if Awbury materially were to improve its scale and reduce its reliance on the Fund Opportunities business for revenue generation while maintaining strong capital ratios.

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

RATING RATIONALE
Awbury is a specialist insurance company domiciled in Bermuda and the Company additionally operates out of offices in Connecticut, Florida, Singapore, and London. Awbury provides its clients with specialized insurance and capital solutions across a range of complex credit and investment products as well as economic and financial risks.

The Company has managed operational risk exposures well, as evidenced by Awbury'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, Awbury has executed a number of new reinsurance quota treaties over the past year.

A significant portion of the revenue that the Company generates is from reinsurance commissions on ceded business. 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 return on equity (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 2022, which is indicative of Awbury's strong earnings ability.

The Company 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. Awbury maintains a reinsurance program that mitigates the potential impacts of claims severity because the majority of premiums written are ceded to reinsurance counterparties. Most claims obligations are paid directly by its reinsurers to the insured party, which is positive for the Company'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, The Company is significantly capitalized, with available capital well above the required regulatory minimums set by the Bermuda Monetary Authority.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

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

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

The principal methodology applicable to the rating is the Global Methodology for Rating Insurance Companies and Insurance Organizations (August 31, 2022; https://www.dbrsmorningstar.com/research/402220/). In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022; https://www.dbrsmorningstar.com/research/396929/) in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally 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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