AM Best removes the under review with negative implications status from GUNA Re and affirms the Cayman Islands captive’s financial strength rating of ‘A-’ (Excellent) and long-term issuer credit rating of ‘a-’ (Excellent). The outlook assigned to the ratings is ‘stable’. The removal reflects the resolution of uncertainty surrounding the company’s balance sheet strength, following a capital injection from ultimate parent ITOCHU. GUNA Re recorded significant capital erosion in May, arising from accounting treatment issues in the novation of an underwriting portfolio from NEWGT Reinsurance Company to GUNA Re, which AM Best views as NEWGT’s re-domiciled entity, established in the Cayman Islands in February. The company took immediate remedial action to improve its capital position, including suspending new business underwriting and seeking internal approval for capital support from ITOCHU. It received the injection on 19 August, fully restoring capital to the initial capitalisation level set out in its business plan. AM Best expects risk-adjusted capitalisation to remain at the strongest level over the intermediate term, as measured by Best’s Capital Adequacy Ratio (BCAR). The ratings reflect GUNA Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. AM Best considers GUNA Re a re-domiciled entity rather than a start-up, reflecting the continuity of NEWGT’s management team and its established operating track record. Management remains focused on growing third-party business, intending to control the pace of expansion alongside appropriate capital management. Negative rating actions could occur if aggressive expansion into third-party business leads to deterioration in the business profile, driven by stronger competition and reduced underwriting control inherent to a traditional single-parent captive business model. They could also arise from a material decline in risk-adjusted capitalisation, or an excessive dividend payout to ITOCHU.
