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FOR IMMEDIATE RELEASE
LONDON - JUNE 06, 2014 10:53 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 both ratings remains stable.
The ratings reflect Bosna Re's adequate risk-adjusted capitalisation, consistently solid operating results and dominant position within its domestic market. Partly offsetting rating factors include its relatively high exposure to illiquid equity investments and underwriting concentration with a small number of cedants. The ratings also consider Bosna Re's exposure to the weak economic conditions in its core market, BH.
Bosna Re's capital adequacy, as measured by A.M. Best, continues to be constrained by its investments in private associates, which represent 44% of consolidated shareholders' funds at year-end 2013. Despite this factor, Bosna Re's risk-adjusted capitalisation is expected to remain at a supportive level, owing to modest growth prospects in the near term, given the depressed economic environment in BH.
Bosna Re's operating results weakened in 2013, due to a decline in the combined ratio to 99%, compared to 94% produced in the previous year. Bosna Re's technical performance reflected an increase in net claims activity following a restructuring in its reinsurance programme, which resulted in a rise in loss retention levels for some lines of business. Nonetheless, A.M. Best expects Bosna Re's prospective earnings to remain solid as the company maintains its cautious underwriting strategy.
Bosna Re is the dominant reinsurer in BH, with a market share of around 85%. The company's strong competitive position is protected by the high barriers to entry into the BH market through regulatory constraints and associated costs of operating in a small market. Bosna Re also benefits from long-standing relationships with its cedants, some of which are also its shareholders. In 2013, approximately 55% of gross written premiums were derived from its top three shareholders. A.M. Best recognises Bosna Re's exposure to the weakened economic and political conditions in BH, but believes that the company's dominant profile will provide a safeguard against any adverse effects on its solid rating fundamentals.
There are no positive pressures underpinning Bosna Re's rating. Negative rating actions could occur if sustained weakening in Bosna Re's underwriting performance results in the deterioration of risk-adjusted capitalisation. Additionally, further decline in the economic environment in BH could negatively affect Bosna Re's ratings.
The methodology used in determining these 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.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures:A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
This rating announcement has been issued by A.M. Best Europe - Rating Services Limited, which 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.