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FOR IMMEDIATE RELEASE
HONG KONG - APRIL 18, 2013 12:00 AM (EDT)
A.M. Best Asia-Pacific Limited has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb” of National Reinsurance Corporation of the Philippines (PhilNaRe) (Philippines). The outlook for both ratings is stable.
The ratings reflect PhilNaRe’s solid risk-based capitalization, established market presence in the Philippines as well as its stable investment results.
PhilNaRe’s risk-adjusted capitalization level, as measured by Best’s Capital Adequacy Ratio (BCAR), remained strong in 2011. The company’s gross and net underwriting leverage was reduced in 2011, mainly due to a reduction in premium income when compared to the previous year. PhilNaRe’s invested assets that were allocated in fiscal year 2011 remained similar to 2010, with approximately 75% of its total investments allocated to bonds, deposits and cash.
As the sole professional reinsurer in the Philippines, PhilNaRe enjoys a compulsory cession as all direct insurance companies are required to offer PhilNaRe at least 10% of their foreign outward reinsurance. With over 30 years of operating in the Philippines, the company has established a strong market presence in that domestic market.
PhilNaRe has a conservative investment portfolio, which has enabled it to post stable investment results in the past five years. Historically, the company has relied on its favorable investment performance to generate a satisfactory bottom line.
Offsetting rating factors include PhilNaRe’s unfavorable underwriting performance in recent years as well as its relatively weak presence in the overseas market. Although PhilNaRe's loss ratio improved to 79.8% in 2011 from 113.7% in 2010, the company’s 132.6% combined ratio in 2011 was still unsatisfactory. PhilNaRe has gradually taken a more prudent underwriting strategy, aiming to improve its underwriting performance.
Managing catastrophe risk, from both domestic and overseas exposures, also is crucial for PhilNaRe. PhilNaRe carefully manages its aggregate exposures, studying potential catastrophe losses and purchasing catastrophe excess of loss retrocession. Nonetheless, large catastrophe losses exceeding the company’s expectation could still materially impact its capitalization level.
Future positive rating actions could occur if PhilNaRe can demonstrate notable improvement in its underwriting profitability, maintain its solid risk-based capitalization and strengthen its risk management capability. Alternatively, downward rating actions could occur if the company’s underwriting performance further deteriorates or there is a material decline in its risk-based capitalization level.
The methodology used in determining these interactive ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Asia-Pacific Limited is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.