LONDON--(BUSINESS WIRE)--AM 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 balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
Bosna Re’s balance sheet strength is supported by the strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s risk-adjusted capitalisation benefits from robust internal capital generation, a well-rated retrocession panel and prudent reserves. Risk-adjusted capitalisation strengthened considerably in 2017 owing to the sale of a material private equity investment; however, AM Best expects prospective risk-adjusted capitalisation to deteriorate marginally, as the sale proceeds are distributed to shareholders as extraordinary dividends. The relatively small capital base remains an offsetting factor to the balance sheet strength assessment, with little capital buffer to protect against adverse events in absolute terms. Furthermore the company’s investment portfolio remains a source for potential earnings and capital volatility.
Bosna Re maintained its market-leading position in BH in 2018, commanding a market share, based on gross written premiums (GWP) of approximately 80%; the company remains the only domestic reinsurer licenced to write life and non-life insurance. AM Best considers the company’s competitive position 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 41% of its GWP derived from its top three cedants (some of which are shareholders). Additionally, the company’s geographic diversification remains limited, with only 10% of gross premiums emanating from outside of BH. AM Best believes that the company’s dominant domestic market profile provides some protection against the potential impact from the challenging economic and political conditions in BH.
Bosna Re has a track record of stable operating performance, generating pre-tax profits of BAM 2.1 million (USD 1.2 million) in 2018. Stable underwriting performance underpins the company’s results, with a five-year average combined ratio of 95.3% (2014-2018), further supplemented by investment earnings. AM Best expects Bosna Re’s earnings to remain stable, as the company maintains a cautious underwriting strategy.
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