AM Best Affirms Credit Ratings of Bosna Reosiguranje d.d. Sarajevo
- July 08, 2021 10:13 AM (EDT)
London //BestWire// - AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of Bosna Reosiguranje d.d. Sarajevo (Bosna Re) (Bosnia and Herzegovina [BH]). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Bosna Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
Bosna Re’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which remained at the strongest level at year-end 2020, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s balance sheet strength is supported by a well-rated retrocession panel and prudent reserving. The relatively small capital base is an offsetting factor to the balance sheet strength assessment, as there is only a small capital buffer in absolute terms to protect against adverse events. The company paid extraordinary dividends between 2017 and 2019, returning proceeds from a large asset sale, which limited capital growth over that period. AM Best expects prospective risk-adjusted capitalisation to benefit from internal capital generation, as the company returns to a normal level of dividend. Bosna Re’s investment portfolio, which is primarily concentrated in BH, is a potential source of volatility as it exposes the company to the elevated levels of economic, political and financial system risk in BH.
Bosna Re has a track record of adequate operating performance, with a solid five-year (2016-2020) average combined ratio of 95.5%. In 2020, the company generated pre-tax profits of BAM 3.1 million (USD 1.8 million). AM Best expects Bosna Re’s earnings to remain stable, as the company maintains a cautious underwriting strategy, which focuses on careful risk selection and the use of retrocession to limit net losses.
Bosna Re remains the only domestic reinsurer licensed to write life and non-life insurance in BH and is the leading local reinsurer, with a market share in excess of 70% based on 2020 gross written premiums (GWP). AM Best considers the company’s competitive position defensible over the medium term, owing to the high regulatory barriers to entry in BH, the burdensome costs of operating in a small market and the company’s longstanding relationships with local cedants. Bosna Re’s underwriting portfolio is concentrated, with 41% of GWP derived from its top three cedants. Additionally, the company’s geographic diversification is limited, with only 8% of GWP emanating from abroad. AM Best believes that the company’s dominant market position provides some protection against the impact of the challenging economic and political conditions in BH.
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 Guide to 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.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.