National Re Receives High Rating

The National Reinsurance Corporation of the Philippines (NRCP), the Philippines’ sole domestic professional reinsurer, was assigned a financial strength rating of PRS A plus by the Philippine Rating Services Corporation (PhilRatings).

A PRS A rating means that an insurer has strong financial security characteristics, but is somewhat more likely to be affected by adverse business conditions compared to higher rated insurance companies. The plus sign further qualifies the rating.

The assigned financial strength rating for NRCP takes into consideration NRCP’s: a) solid market franchise; b) shareholders of good standing; c) the experienced management which has contributed to the company’s growth; d) its sound investment portfolio; and e) its improving, but still volatile, profitability.

NRCP has a solid market franchise, given its status as the Philippines’ leading professional reinsurer. The company directly competes with foreign reinsurance companies with agents licensed by the Insurance Commission (IC), and to a lesser extent with domestic insurance companies, which are also licensed to sell reinsurance. NRCP, nonetheless, has to its advantage Presidential Decree No. 1270, which mandates “all life and non-life insurance and reinsurance companies doing business in the Philippines to cede to the company (NRCP) at least 10% of their outward reinsurance placed with unauthorized foreign reinsurers.” Of the licensed insurance companies in the Philippines as of December 31, 2016, NRCP had existing reinsurance agreements with 50 (out of 66) non-life insurance companies, all of the 27 life insurance companies and three (out of four) composite companies. NRCP’s marketing strategy is supported by its technical know-how, industry track record and familiarity with the domestic market.

NRCP is led by a competent management team with extensive experience and understanding of the insurance and financial markets, both domestic and global. While relatively new to the company (average of 3 years), members of the management team brings with them solid experience in the insurance industry. The current management team has played an important role in the gradual improvement of the company’s core business and growth trajectory in recent years.

Management is led by Augusto Hidalgo, who is Director, Chief Executive Officer (CEO) and President of NRCP. Mr. Hidalgo has been with the company since April 2014. Mr. Hidalgo worked as a strategy executive, heading Mergers and Acquisitions (M&A), of Peak Reinsurance Hong Kong in the last eight years, and also as Managing Partner of New World Financial Canada. Other members of NRCP’s management team are similarly well-experienced in the insurance business.

NRCP’s investment strategy is grounded on the principle of diversification, spread over the medium to long term. Low-risk bonds comprised half of the total portfolio. Further, equity investments were largely with blue chip companies in various industries. Cash and cash 2 equivalents, which include cash in banks and short-term placements, represented 12.7% of the investment portfolio, as of December 31, 2016.

NRCP’s profitability is considered weak for the historical period 2011 to 2015, although underwriting profit margin and returns have improved beginning 2014. While investment yields have been consistently positive, volatile growth across business lines and higher than expected loss and expense ratios negatively impacted operating performance results. NRCP expects, however, to record positive underwriting margins and returns in 2017 and 2018. Premiums written, gross and net, are projected to grow, driven by the non-life business. Continued improvement in combined ratio will buoy overall profitability for the projected period. Operating targets will mainly be supported by continued portfolio diversification and technical capability building.