Best’s News & Research Service - April 26, 2019 10:10 AM (EDT)
AM Best Affirms Credit Ratings of Asian Reinsurance Corporation
- April 26, 2019 10:10 AM (EDT)
Singapore //BestWire// - AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Asian Reinsurance Corporation (Asian Re) (Thailand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Asian Re’s balance sheet strength, which AM Best categorizes as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).
Asian Re’s balance sheet strength is underpinned by its risk-adjusted capitalization, which AM Best expects to remain at the strongest level over the medium term. Capital adequacy is supported by the company’s low underwriting leverage and investment portfolio comprising principally cash and short-term deposits. Despite this, a significant portion of its cash and deposits are held offshore in a country subject to sanctions, which continues to be a significant offsetting balance sheet factor. AM Best views this investment strategy as creating increased liquidity and credit risk for Asian Re, as the imposition of existing and future sanctions may drive a heightened potential for transfer restrictions that may impact the company’s ability to access its funds in a timely manner.
Asian Re’s overall earnings remain driven by a steady stream of investment income, which has helped to offset unfavorable technical results over a number of years. The company’s five-year average return on equity ratio remains profitable at 3.1% (2014-2018). However, the average combined ratio over the same period exceeds 115%. Due to its small net premium base and adverse reserve development, Asian Re’s underwriting performance has exhibited a relatively high level of volatility.
Following catastrophe events in Thailand during 2011 and 2012, which led to a need to recapitalize the company, Asian Re faces challenges in growing its premium base and rebuilding its presence in the regional reinsurance market. The company continues to implement a number of strategic initiatives aimed at expanding its underwriting portfolio and market presence. However, the ability of the company to execute on these actions successfully, coupled with continued competitive market conditions, remain key challenges at present.
Asian Re’s ERM framework is at an evolving stage, with the company taking steps to develop the identification, management and mitigation of key risks. As the scale and complexity of the company’s operations continue to increase, Asian Re will need to demonstrate improvements in its risk management capabilities.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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