AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Colonnade Insurance S.A. (Colonnade) (Luxembourg), a member of the Fairfax Financial Holdings Limited (Fairfax) [TSX: FFH] group of companies. The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Colonnade’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 (ERM).

Colonnade’s balance sheet strength assessment of strong is supported by its risk-adjusted capitalization being at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), consistent with the prior year, and it is expected to be maintained at this level in the near term. In recent years, capital generation has been through investment returns and profitable underwriting. Going forward, AM Best expects that Colonnade will continue to support its business needs through organic capital generation, as it continues to grow and invest in its infrastructure. Colonnade benefits from implicit support provided by Fairfax.

Colonnade’s adequate operating performance has been driven by its very favorable loss performance that significantly outperforms its peer composite, but is offset somewhat by a higher expense ratio. The higher expense ratio is primarily driven by increased technological investments in recent years to support growth. As Colonnade matures, investments in underwriting efficiencies have contributed to greater profitability. Colonnade has generated an underwriting profit consistently in recent years. The company’s premium growth has been variable, while the loss reserve growth has been steady over the past few years. Premiums grew a little over 10% year-over-year, and this trend is expected to continue in the upcoming years driven by the continued growth of its core book of business.

The company’s neutral business profile reflects its concentration in Central and Eastern Europe, with the three largest countries – Poland, the Czech Republic and Hungary – representing approximately 75% of the premium written. Concentration risk is offset by the dispersion of the remaining 25% of its business in three other Central and Eastern European countries and Colonnade’s diverse product offering.

AM Best considers the company’s risk management capability to be in line with its risk profile, and it is supported by Colonnade’s focus on maintaining geographic and by-line diversified business, conservative reserving and per-risk reinsurance limits, supporting the assessment of appropriate. The company benefits from a comprehensive and well-documented ERM program and is independent in its ERM function, while continuing to benefit from the risk management expertise of its ultimate parent, Fairfax.

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