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A.M. Best Affirms Ratings of BMO Reinsurance Limited

Posted on 20 Aug 2012 by Neilson

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A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a+” of BMO Reinsurance Limited (BMO Re) (Barbados). The outlook for both ratings is stable.

BMO Re is an indirect wholly owned subsidiary of Bank of Montreal (BMO) (Toronto, Ontario) and is a reinsurer of life, property/casualty and disability risks. The ratings of BMO Re reflect its stable underwriting performance, favorable risk-adjusted capitalization, strong liquidity and conservative investment portfolio. BMO continues to maintain strong risk-adjusted capitalization levels, and its investment portfolio, which is primarily invested in highly rated sovereigns, supranationals and corporate bonds, reflects relatively low levels of credit risk.

While recognizing the solid market position of BMO and BMO Re’s profitable operations, A.M. Best notes an overall modest market position of BMO Re relative to its peers, recent earnings volatility and challenges associated with strengthening distribution channels and new product acceptance. Additionally, volatility in economic conditions in Europe could impact BMO Re’s ability to retrocede assumed risks to its European counterparties, and BMO Re is exposed to potential earnings volatility from its assumed property/casualty risk and to a lesser degree, capital. However, capital volatility associated with property/casualty risk is partially mitigated by the ability to retain earnings prospectively.

BMO Re is considered well positioned at its current rating level.

Positive actions on BMO Re’s ratings are unlikely in the near or intermediate term. Factors that may cause negative rating actions include significant adverse changes in the company’s capitalization, operating performance or business model.