AM Best has assigned a Preliminary Credit Assessment (PCA) to Mereo Insurance Limited (Mereo) with a Financial Strength Assessment of A- pca (Excellent) and a Long-Term Issuer Credit Assessment of “a-” pca (Excellent). The outlook assigned to this PCA is stable.

The PCA reflects Mereo’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).

The PCA also reflects AM Best’s assessment that, based on Mereo’s business plan, the company will maintain a balance sheet assessment of very strong supported by projected risk-adjusted capitalization at the strongest level throughout the five-year initial forecast period, as measured by Best’s Capital Adequacy Ratio (BCAR). Initial capitalization in 2024 and retained earnings through the forecast period are expected to support premium growth, which is expected to be rapid in its early years, based on projections. Capital is anticipated to be managed through the use of reinsurance and potentially third-party capital. Investment risk is projected to be low given a conservative investment portfolio, which will remain matched closely to the evolution of the liability profile, supporting stability in future balance sheet metrics.

The adequate operating performance assessment and the limited business profile assessment are based on Mereo’s business plan presented to AM Best. The plan includes rapid premium growth in its first years and improving operating profitability that supports an adequate operating performance assessment. Outlined in the plan is a portfolio composed of casualty and specialty business diversified by subcategories, geographies, and attachment points. Mereo’s senior management team is composed of individuals with extensive experience and strong track records in the industry. The limited business profile assessment, nevertheless, considers the execution risk faced by any start-up operation, in recognition of the customary challenges associated with gaining market acceptance in the casualty and specialty space, while remaining profitable. An ERM structure has been established initially and is expected to evolve as the product risks complexity of the business evolves.

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