The methodology describes the major quantitative and qualitative factors KBRA considers when assessing the financial strength of captive insurers.
KBRA’s approach to analysing captive insurers includes a comprehensive evaluation of key quantitative measures, such as stress testing, as well as qualitative elements consisting of three rating determinants: balance sheet management, operating fundamentals, and captive profile and risk management.
In its qualitative rating determinant one, the rating agency examines the captive insurer’s approach to managing its balance sheet, the starting point of which is capital.
In determinant two, KBRA reviews the organisation’s operating fundamentals, including historical pre- and post-dividend earnings trends, various profitability ratios, and pro forma earnings for expected future scenarios.
In determinant three, it considers the captive’s domicile, the effectiveness of its risk management framework as well as the owners overall involvement with, and strategic vision for, the captive.
As part of the methodology, the agency also formally calculates the ability and willingness of the owner to financially support the captive when needed, especially in its early years of operation.
For single parent captives, it will assess the credit quality of the parent company utilising its general corporate rating methodology.
However, this methodology does not apply to any type of cell captives and risk retention groups licensed and regulated as traditional property and casualty insurance companies in their state of domicile.
Click here to access the full methodology.