Credit rating agency AM Best has assigned Swiss Ikano Re AG a financial strength rating of A (Excellent), a long-term issuer credit rating of “a” (Excellent), and a stable outlook.
The founding family of global retail store brand IKEA is the majority shareholder of Ikano Re.
The reinsurer provides reinsurance protection for risks associated with the global IKEA franchise system, much of which is concentrated in property damage and business interruption insurance coverage in IKEA stores worldwide.
Interestingly, AM Best notes that Ikano Re also provides additional reinsurance capacity for global natural catastrophe risks led by established reinsurers, which is expected to account for a third of its premiums in the medium term. It therefore appears that Icano Re will diversify its portfolio beyond the IKEA Group’s own risks, meaning this is also market-facing and a captive reinsurer of its parent company.
AM Best explained that the ratings reflect Ikano Re’s “very strong” balance sheet strength, strong operating performance, limited business profile and appropriate enterprise risk management.
Ikano Re’s balance sheet assessment, based on its risk-adjusted capital, is expected to “comfortably exceed the minimum level required for the strongest assessment level,” according to Best’s Capital Adequacy Ratio (BCAR) measure.
AM Best also expects the company’s business to continue to rely on the capabilities provided by retrocession, despite the generally good credit quality of its retrocession partners.
The evaluation also takes into account Ikano Re’s conservative investment strategy and prudent reserving practices. The reinsurer has a strong operating performance record, with a five-year (2021-2025) weighted average return on equity of 17.8%, according to AM Best.
The credit rating agency explained: “Performance was underpinned by strong underwriting performance, with a five-year (2021-2025) weighted average combined ratio of 46.4%, reflecting very low expense levels and modest average claims experience, and we believe Ikano Re’s risk management capabilities are commensurate with its risk profile.”
