Press Release - DECEMBER 20, 2018
AM Best Affirms Credit Ratings of Peak Reinsurance Company Limited and Its Subsidiary
FOR IMMEDIATE RELEASE
HONG KONG - DECEMBER 20, 2018
The ratings reflect Peak Re’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
Peak Re’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is expected to remain at a robust level and supportive of its evolving risk profile over the short to intermediate term, underpinned by the track record of capital support from its shareholders and full retention of profits, as well as a lower investment risk profile. In April 2018, the company introduced a new strategic investor, Prudential Financial, Inc. (PFI), via the issuance of news shares. Fosun International Holdings Ltd. (Fosun) and PFI currently hold 86.9% and 13.1% of Peak Re via Peak Reinsurance Holdings Limited.
On Dec. 9, 2018, the company announced the launch of Asia’s first sidecar, Lion Rock Re Ltd., to provide collateralized retrocession for Peak Re. Coupled with additional retrocession purchased, AM Best views the company as equipped with enhanced underwriting capacity and financial flexibility, while adequately protected from tail exposure to worldwide catastrophe risks.
AM Best expects Peak Re’s underwriting result in 2018 to be negatively impacted by losses related to multiple major typhoons in Asia, although the total amount is expected to be more subdued compared with the losses arising from the U.S. hurricanes in 2017. Notwithstanding, the company’s underwriting results were in line with the industry average. The increasing trend in acquisition costs due to market competition has also put additional pressure on the company’s underwriting profitability. Despite this, the company has demonstrated favorable operating efficiency to mitigate the effect partially. In addition, the company has been de-risking its investment portfolio to further strengthen the growing stream of interest and dividend income to support the overall operating income.
Notwithstanding its relatively short operating history in the global reinsurance market, Peak Re has established and maintained a diversified business portfolio by product lines and geographical exposure. Asia Pacific remains the company’s core market region, while the company puts increasing focus on underwriting proportional treaties.
Offsetting rating factors include the continued competitive rate environment, upward pressure on acquisition expenses and potentially more frequent occurrence of severe catastrophe events, as well as anticipated higher volatility in investment valuations due to capital market fluctuations.
Positive rating actions are unlikely in the near term. Negative rating actions may occur if there is a material deterioration in the company’s risk-adjusted capitalization, liquidity position or level of financial flexibility, or if there is a deteriorating trend in underwriting or investment results. Deterioration in Fosun’s credit profile may also result in negative impact on Peak Re’s ratings.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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