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 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 is underpinned by its 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. AM Best expects the company’s capital adequacy to remain supported by its low underwriting leverage and its investment portfolio, mainly in cash and short-term deposits. Despite this, a significant portion of its cash and deposits are held offshore in a country subject to sanctions, which remains 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 reported an operating loss in 2020, and its five-year average return-on-equity ratio is modest at 0.5% (2016-2020). Underwriting results remain volatile, with the company’s average combined ratio over the past five years exceeding 125% (2016-2020). Despite an improved expense ratio in 2020, the company’s loss ratio deteriorated due to worse-than-expected large and catastrophe losses, as well as from reserve strengthening actions. The impact of reserve strengthening follows the company’s decision to enhance its reserving approach to align more closely with internationally recognised actuarial practices. Whilst the company has demonstrated growth of its underwriting operations over recent years, its net premium base remains relatively small. Overall, Asian Re’s earnings remain driven and supported by a steady stream of investment income, which has aided to offset unfavourable technical results over a number of years.
AM Best views Asian Re’s business profile to be limited, as the company faces pressure 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. Notwithstanding this, AM Best views the company’s medium-term business plan, which is aimed at growing its scale and turning around its technical results, as presenting a high level of execution risk given persisting competitive market conditions.
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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