SINGAPORE--(BUSINESS WIRE)--AM Best has upgraded the Financial Strength Rating to B++ (Good) from B+ (Good) and the Long-Term Issuer Credit Rating to “bbb” from “bbb-” of PVI Reinsurance Joint-stock Corporation (PVI Re) (Vietnam). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect PVI Re’s balance sheet strength, which AM Best categorizes as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM). In addition, PVI Re benefits from rating enhancement from HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G. or the HDI group).
The rating upgrades follow HDI V.a.G.’s increased ultimate ownership of PVI Re and the resulting implicit support that the subsidiary is expected to benefit from over the near term. During the first half of 2019, the HDI group obtained a majority ultimate ownership stake in PVI Re. Despite PVI Re’s operations accounting for a small component of HDI V.a.G.’s overall revenues and earnings, the company is considered important to the HDI group’s international expansion plans.
PVI Re’s balance sheet strength assessment is underpinned by risk-adjusted capitalization that AM Best expects to remain at the strongest level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR). A partially offsetting balance sheet factor is the company’s small absolute capital base (USD 39 million at year-end 2018) as compared with local and regional reinsurance peers, which increases PVI Re’s sensitivity to shock events or performance outside of expectations. In addition, PVI Re continues to exhibit high retrocession usage and dependence to enable the underwriting of large commercial property, energy and engineering risks.
The company has a track record of strong performance, with a five-year average combined ratio of 81% and a return on equity ratio of 15% (2014-2018). The company’s commercial property and industrial risks portfolio, which have benefited from low net loss experience and favorable inward commissions from retrocessionaires, remains a key driver of technical profitability.
PVI Re’s business profile is assessed as limited. The company is a small-sized reinsurer in Vietnam, with VND 1,216 billion (USD 52 million) of gross premium written (GPW) in 2018. PVI Re also continues to exhibit high cedent concentration risk arising from its affiliated company, PVI Insurance Corporation (PVI Insurance). In 2018, ceded business from PVI Insurance accounted for approximately 67% of PVI Re’s GPW.
The company’s ERM approach is considered appropriate given the size and complexity of its current operations. Going forward, PVI Re is expected to benefit from the HDI group’s international product expertise in areas of risk selection, pricing and reserving, as well as its oversight and support in respect of risk management.
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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