AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of Spheric Assurance Company, Ltd (Spheric) (British Virgin Islands). The outlook of these Credit Ratings (ratings) is negative.

These ratings reflect Spheric’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).

The negative outlooks reflect AM Best´s expectation of continued pressure on Spheric’s ERM over the short term, as the company continues to execute a viable turnaround strategy, while it faces operational risk in its reporting and accounting.

Spheric has steadily strengthened its capital base by reinvesting its earnings. The strong balance sheet strength assessment also factors in the company’s conservative investment portfolio, mainly integrated by fixed income and equity securities. Despite Spheric’s reinsurance dependence over the years, the company has managed to increase its retention as expertise in its niche markets sharpens. As of December 2023, Spheric’s balance sheet strength was pressured by the effects of Hurricane Otis impacting its credit risk. As of June 2024, the company showed an improved balance sheet position reinforcing its strong balance sheet strength assessment.

Spheric has shown positive bottom-line results over the years; on average, its operating performance has been underpinned by positive technical results. Despite the negative results reported in 2023, the company shows a recovery in its positive bottom-line results as of June 2024. AM Best expects the company to maintain premium sufficiency levels while implementing its expansion strategy.

AM Best assesses the company’s business profile as limited; Spheric concentrates its efforts in niche markets and the geographic diversification of its premiums and client base is somewhat narrow. Spheric is based in the British Virgin Islands and fully owned by Global Insurance Group Holding Company, Inc. The largest share of Spheric’s gross premiums written is derived from insuring personal watercraft, while additional premium is generated through kidnap and ransom, personal accidents and property reinsurance.

Spheric’s ERM is considered appropriate, as it is well-integrated into its operations. Despite the company’s embedded internal controls, Spheric used to face operational risk as it concentrated various functions in one person, thus a corporate governance factor was considered a key driver behind the revised rating outlooks to negative from stable. AM Best looks forward to a stabilization in its governance as Spheric has a better structure in its staff implemented in 2024, mitigating operational risk by allocating responsibilities throughout its team. The company has a sound reinsurance program in place with highly rated reinsurers.

Although it is unlikely, positive rating actions could take place if Spheric’s risk-adjusted capitalization continues to improve showing a stable trend in the long term. Conversely, negative rating actions could take place if a deterioration in its corporate governance continues to impact the company’s ERM assessment. Also, negative rating actions could take place if the risk-adjusted capitalization of Spheric continues to show volatile behavior.

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AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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