SINGAPORE--(BUSINESS WIRE)--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 categorises 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 risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which is expected to remain at the strongest level over the medium term. Capital adequacy is expected to remain supported by the company’s low underwriting leverage despite recent and planned underwriting growth, as well as from its investment portfolio comprising principally cash and short-term deposits. Notwithstanding 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 unfavourable technical results over a number of years. The company’s five-year average return-on-equity ratio remains profitable at 2.4% (2015-2019). Despite an improving trend in the company’s loss ratio and expense ratio in 2018 and 2019, underwriting results remained unprofitable with an average combined ratio over the past five years exceeding 115% (2015-2019). Whilst the company has demonstrated growth of its underwriting operations in 2018 and 2019, its net premium base remains relatively small. This factor coupled with historical adverse reserve development has driven volatility in Asian Re’s underwriting performance metrics over the past five years.
AM Best views Asian Re’s business profile to be limited, as the company faces challenges in rebuilding its presence in the regional reinsurance market following catastrophe events in 2011 and 2012, which led to a need to recapitalise the company. The company continues to implement a number of strategic initiatives and business partnerships aimed at expanding its underwriting portfolio and market presence. However, regulatory requirements have made it harder for the company to access and operate in certain regional markets, and persisting competitive market conditions remain key challenges at present.
AM Best considers Asian Re’s ERM approach to be appropriate given the size and complexity of its current operations. The company has taken steps to develop the identification, management and mitigation of key risks, and has demonstrated improvements in its risk management capabilities over recent years.
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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