SINGAPORE--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) 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 assesses as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).
Asian Re’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which AM Best expects to remain at the strongest level over the medium term. Asian Re is viewed to have moderate reliance on retrocession to support its underwriting of large limit risks, as well as to manage accumulation and catastrophe exposures. A significant offsetting balance sheet strength factor is the company’s high risk investment strategy, with it holding a sizeable portion of cash and deposits in offshore countries, one of which is subject to sanctions and the other being currently in default of its sovereign debt. AM Best views this investment strategy as creating increased liquidity and credit risk for Asian Re, as the imposition of existing and future sanctions or deepening of economic crisis in these respective countries may drive a heightened potential for transfer restrictions, which may impact the company’s ability to access its funds in a timely manner.
AM Best views the company’s operating performance as marginal. Asian Re’s operating performance has exhibited volatility in recent years, with a five-year average return-on-equity ratio of -0.1% and a combined ratio of 123.6% (2017-2021), as calculated by AM Best. The company’s underwriting performance has been impacted by higher-than-expected large and catastrophe losses, as well as a reserve strengthening exercise in recent years; however, in 2021, the combined ratio improved to 107.4%. A stable stream of investment income has helped offset underwriting losses over a number of years, including 2021. Nonetheless, achievement of future profitability remains subject to an elevated level of execution risk of remedial actions in a competitive market environment and a challenging investment landscape in a low interest rate environment.
AM Best views Asian Re’s business profile as limited, given the company’s position as a regional non-life reinsurer, with a modest-sized gross premium base of USD 23.5 million in 2021. The company’s scale and market presence contracted significantly, following catastrophe events in 2011, which led to a need to recapitalise the company. Despite persistent market and regulatory challenges, the company continues to implement a number of strategic initiatives and business partnerships aimed at expanding its underwriting portfolio and market presence.
AM Best considers Asian Re’s ERM approach to be appropriate given the size and complexity of its current operations. The company continues to develop its risk framework 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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