AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of 'a-' (Excellent) of Builders Reinsurance S.A. (Builders Re) (Luxembourg) and Builders Direct S.A. (Builders Direct) (Luxembourg), both subsidiaries of HOCHTIEF Aktiengesellschaft (HOCHTIEF), a large Germany-based construction company that is majority owned by ACS, Actividades de Construccion y Servicios, S.A.
The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Builders Re's balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
Builders Re's balance sheet strength is supported by risk-adjusted capitalisation at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR). AM Best expects Builders Re's risk-adjusted capitalisation to remain at the strongest level supported by low underwriting leverage. Offsetting factors in the balance sheet strength assessment include the company's high level of retrocessions to a non-rated reinsurer and its significant investment allocation to bonds issued by its intermediate parent company, HOCHTIEF.
Builders Re has a track record of strong and stable operating performance, largely driven by robust underwriting results, as demonstrated by a five-year (2016-2020) weighted average combined ratio of 81.8%, as calculated by AM Best. Builders Re's prospective performance is subject to volatility mainly due to the company's exposure to business associated with the cyclical U.S. construction market.
Builders Re's business profile assessment of limited reflects the company's geographically concentrated portfolio of casualty risks that emanate from HOCHTIEF's construction operations in North America. Additionally, Builders Re reinsures open-market business, including business emanating from its sister company, Builders Direct. Builders Re's volume of business is expected to grow during the period 2021-2023, following a significant contraction in 2020 (36%).
Builders Direct was created in 2013 and provides insurance cover to third-party entities, specialising in the insurance of SME business, surety and discretionary mutual companies. Builders Direct's ratings primarily reflect its strategic importance to Builders Re as a source of business growth and diversification, as well as explicit support from Builders Re in the form of reinsurance protection.
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AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.