LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Bosna Reosiguranje d.d Sarajevo (Bosna Re) (Bosnia and Herzegovina [BH]). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect Bosna Re’s leading position within its domestic market, adequate risk-adjusted capitalisation and consistently solid operating results. Partially offsetting rating factors include Bosna Re’s concentrated underwriting portfolio, its holdings in illiquid equity investments, and the company’s exposure to the challenging economic environment in BH.
Bosna Re maintained its market leading position in BH in 2016, with a reinsurance market share of 85% (based on gross written premiums), it remains the only domestic reinsurer licenced to write life and non-life insurance. The company’s competitive position is considered defensible over the medium term owing to the high barriers to entry in BH, which include regulatory constraints and the burdensome costs of operating in a small market. Bosna Re’s underwriting portfolio remains concentrated, with approximately half of its gross written premiums derived from its top three cedants (some of which were shareholders). A.M. Best believes that the company’s dominant market profile provides some protection against the potential impact of the challenging economic and political conditions in BH on its rating fundamentals.
The company’s risk-adjusted capitalisation is considered adequate for the rating level. Capital requirements are driven largely by concentrated investment holdings in privately held associates; at year-end 2016, these investments represented 49% of shareholders’ funds. In 2017, Bosna Re has de-risked its balance sheet through the sale of a material private equity investment, which is expected to strengthen risk-adjusted capitalisation. At year-end 2017, Bosna Re’s prospective risk-adjusted capitalisation remains subject to volatility, due to its investment allocation.
Bosna Re has a track record of good operating performance, generating a five-year (2012-2016) return on equity of 7.2%. The company’s performance has benefited from stable underwriting returns, with a five-year (2012-2016) average combined ratio of 94.8%, supplemented by stable investment earnings. A.M. Best expects Bosna Re’s prospective earnings to remain solid, as the company maintains a cautious underwriting strategy.
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