Canopius outlook lowered to negative on balance sheet pressures

Ratings agency  AM Best has lowered the outlook of  Canopius US and Bermuda unit’s A- financial strength rating to negative from stable citing pressures on its balance sheet strength.

The entities affected by the rating action are Canopius US Insurance and Canopius Reinsurance (Canopius Re), both wholly owned subsidiaries of Canopius Group (Jersey), the non-operating holding company of the Canopius group of companies.

The group’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), “decreased to the strong level from the very strong level as at year-end 2021” and is expected to have remained at the strong level through 2022.

It also noted that Canopius’ risk-adjusted capitalisation is expected to improve significantly in the near term, which would alleviate the negative pressure on the ratings. A negative rating action is likely if this does not occur.

AM Best has affirmed the rating based on noting that its balance sheet remains strong, also noting its adequate operating performance, neutral business profile and appropriate enterprise risk management.

Canopius’ underwriting results showed a moderate recovery in 2021, after underperformance during the period 2017-2020. AM Best expects the group to report a further improvement in underwriting performance for 2022, although overall results will likely be impacted adversely by unrealised fair value losses on fixed income investments. Prospectively, AM Best expects operating performance under the new leadership team to continue to benefit from actions taken to reduce exposure to natural catastrophe events, a strong rating environment and from better yields on the group’s investment portfolio due to the higher interest rate environment.