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FOR IMMEDIATE RELEASE
LONDON - JUNE 10, 2016 08:19 AM (EDT)
A.M. Best has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of “bbb-” of Bosna Reosiguranje d.d. Sarajevo (Bosna Re) (Bosnia and Herzegovina [BH]). The outlook for each rating remains stable.
The ratings reflect Bosna Re’s marginal risk-adjusted capitalisation, consistently solid operating results and dominant position within its domestic market. Partly offsetting rating factors are Bosna Re’s high exposure to illiquid equity investments, its concentrated underwriting portfolio and the company’s exposure to the weak economic conditions in BH.
Bosna Re’s consolidated risk-adjusted capitalisation remains at a marginal level, primarily due to the company’s significant share of investments in associated companies, as well as its material holdings of property and unquoted equities. These investments combined represented 71% of consolidated shareholders’ funds as at year-end 2015. Investments in associates mainly relate to investments in cedants, with which Bosna Re maintains strategic or long term relationships. Despite the high risk investment profile, A.M. Best expects the company’s consolidated risk-adjusted capitalisation to remain at a supportive level, owing to the high retention of profits and modest growth prospects in the near term, given the ongoing depressed economic environment in BH.
Bosna Re’s overall earnings continue to be solid, supported by strong technical results and positive investment earnings. The company reported a small improvement in underwriting results in 2015, mainly due to a reduction in management and acquisition costs as well as a moderate increase in net premium volumes. The company’s net loss exposure continues to be effectively managed by a comprehensive retrocession cover. A.M. Best expects Bosna Re’s prospective earnings to remain solid as the company maintains a cautious underwriting strategy, although low interest rates may put pressure on the investment return.
Bosna Re is the leading reinsurer in BH with a market share of approximately 75%. The company’s dominant competitive position is protected by the high barriers to entry in BH, including regulatory constraints and the associated burdensome costs of operating in a small market. Bosna Re’s underwriting portfolio remains concentrated, with approximately half of its gross written premiums derived from its top three cedants (some of which were shareholders). Prospectively, growth is expected to emanate from the company’s domestic market. A.M. Best believes that the company’s dominant market profile will provide some protection against the impact of the weakened economic and political conditions in BH on its rating fundamentals.
This press release relates to rating(s) that have been published on A.M. 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 A.M. Best’s Recent Rating Activity web page.
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