AM Best affirms excellent ratings for Scotia Reinsurance Limited

AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a+” (Excellent) for Scotia Reinsurance Limited (Scotia Re) based in Barbados. The outlook for these ratings is stable.

The affirmed ratings reflect Scotia Re’s robust balance sheet, strong operating performance, neutral business profile, and appropriate enterprise risk management, according to AM Best. These factors, coupled with the implicit support from the greater organization, contribute to the positive assessment.

Scotia Re is a wholly-owned subsidiary of The Bank of Nova Scotia (Scotiabank), one of Canada’s leading banks by market capitalization. As of the fiscal year-end in October 2023, Scotiabank reported approximately CA$79 billion in total equity and CA$1.4 trillion in assets. The bank earned roughly CA$7.5 billion in net income on CA$32 billion in revenue during fiscal-year 2023.

In fiscal-year 2024, AM Best noted that Scotia Re might temporarily pause dividends to its parent company to enhance its capital availability and maintain its risk-adjusted capitalization after transitioning to IFRS-17. The move is seen as favorable risk management given Scotia Re’s focus on moderately riskier international markets. Although Scotiabank does not guarantee support, it may provide additional capital at its discretion to ensure Scotia Re maintains its robust risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), AM Best noted.

AM Best said the stable outlook reflects Scotia Re’s strong balance sheet and operating performance, underpinned by implicit support from Scotiabank. The company’s favorable operating return on equity over time supports its balance sheet and demonstrates its sound underwriting practices in core creditor life reinsurance businesses across Mexico, South and Central America, and the Caribbean.

However, Scotia Re’s strengths are partially offset by its dependence on Scotiabank’s growth strategies and the economic conditions of international markets, many of which have higher country risk profiles. The company’s net premiums have been declining, following its strategic exit from certain products in Mexico, Peru, and the Caribbean. This decision aligns with Scotia Re’s disciplined risk appetite and profitability targets, a trend that AM Best will continue to monitor.

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