SINGAPORE--(BUSINESS WIRE)--AM Best has assigned a Financial Strength Rating of B+ (Good) and a Long-Term Issuer Credit Rating of “bbb-” to PGA Sompo Insurance Corporation (PGA Sompo) (Philippines). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect PGA Sompo’s balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
PGA Sompo’s balance sheet strength is underpinned by its risk-adjusted capitalization being categorized at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Capital adequacy is supported by the company’s very low net underwriting leverage and conservative investment portfolio. Other favorable balance sheet considerations include the implicit and explicit support provided by the company’s minority interest shareholder, Sompo Japan Nipponkoa Insurance Inc. (SJNK). Offsetting balance sheet factors include the company’s very high reinsurance usage and dependence, with over 95% of premiums ceded to reinsurers, albeit with the vast majority placed with its financially strong shareholder, SJNK. In addition, PGA Sompo is viewed to have a small absolute capital base, which AM Best believes increases the sensitivity of risk-adjusted capitalization to changes in performance and stressed scenarios. As at Dec. 31, 2018, the company’s shareholders’ equity stood at PHP 780 million (USD 15 million), albeit with this expected to increase to above PHP 900 million by the end of 2019 as a result of a capital raising with existing shareholders. This follows an increase in the minimum amount of shareholders’ equity required as per regulatory requirements, which becomes effective Dec. 31, 2019.
AM Best considers PGA Sompo’s operating performance to be adequate. The company has achieved consistent operating profitability during the past five years with an average return on equity of 2.1% (2014-2018). Despite the net combined ratio having been volatile over this period, the impact on overall earnings is controlled as a result of the company’s very low premium retention ratio. Investment income has remained the biggest contributor to operating results and has supported an average operating ratio of 60% over the past five years (2014-2018). Prospectively, AM Best expected operating performance to remain adequate, albeit with investment activities remaining the key driver of overall earnings.
AM Best views PGA Sompo’s business profile as limited. Despite the company benefiting from its affiliation with SJNK, which supports strong access to Japan-related risks in the Philippines, PGA Sompo remains a small-sized non-life insurer. Based on gross written premium (GWP), the company had a market share of approximately 2% in 2017, ranking 15th out of 59 companies in the domestic market. In addition, as the company’s business model sees it cede out almost all of its risks, its net premium base accounts for a fraction of market-wide retained premium in the Philippines (circa 0.1%). The company’s underwriting portfolio also is considered concentrated by line of business and geography. In 2018, all business originated from its domestic market, and property/fire risks accounted for approximately 80% of GWP.
AM Best considers the company’s approach to risk management to be appropriate given the size and complexity of its current operations. PGA Sompo also benefits from risk management oversight and governance from the SJNK group.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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