Makati—(PHStocks)—A.M. Best has affirmed the financial strength rating of B++ (Good) and the issuer credit rating of “bbb” of National Reinsurance Corporation of the Philippines (PhilNaRe, PSE: NRCP). The outlook for each rating remains negative.
The ratings reflect PhilNaRe’s strong risk adjusted capitalization and its business profile in the Philippine reinsurance market.
PhilNaRe’s riskadjusted capitalization, as evaluated by Best’s Capital Adequacy Ratio, is supported by its low underwriting leverage. PhilNaRe has low premium retention and cedes a significant portion of risk to a panel of highly rated retrocessionaires.
PhilNaRe is also exposed to earthquake, flooding and typhoon risks, as the majority of its premiums are generated from the domestic market. Having considered the potential impact of catastrophes, PhilNaRe uses substantial retrocession to limit its catastrophe exposure.
As the sole, domestic, professional reinsurer in the Philippines, PhilNaRe enjoys a compulsory cession as all direct insurance companies in the country are required to offer PhilNaRe at least 10% of their foreign outward reinsurance business. The company intends to make full use of this cession going forward.
An offsetting rating factor is PhilNaRe’s unsatisfactory underwriting performance, albeit on an improving trend. Operating expenses have increased, as management implemented several initiatives to help narrow underwriting losses. The company’s capital is also exposed to fair value reserve movements due to substantial investment allocations to equity securities.
Positive rating actions could occur if the company can demonstrate and sustain improvement in its underwriting profitability.
Negative rating actions may arise from a material deterioration in operating performance or negative large fair value reserve movements.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.