AM Best Affirms Credit Ratings of National Reinsurance Corporation of the Philippines

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AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit
Rating of “bbb” (Good) of National Reinsurance Corporation of the Philippines (Nat Re)
(Philippines). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Nat Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate
operating performance, neutral business profile, and appropriate enterprise risk management (ERM).

Nat Re’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital
Adequacy Ratio (BCAR), which remained at the strongest level in 2020. The company is viewed to have a moderate-risk investment portfolio. Despite some exposure to corporate bonds and equity investments, the majority of the
portfolio is composed of fixed-income securities issued by the Philippines government. The company’s allocation to
equity investments has reduced gradually over recent years, with the expectation of continued portfolio de-risking over the medium term. Nat Re maintains a moderate dependence on retrocession, and exposure to counterparties that are non-rated on an international financial strength rating scale. The company’s balance sheet also remains sensitive to natural catastrophe exposure in the Philippines, albeit this risk is mitigated in part through the use of retrocession.

Nat Re’s operating performance is assessed as adequate, with a five-year average return-on-equity ratio of 2.1%
(2016-2020). Underwriting performance improved to a profitable position in 2020, driven mainly by reduced losses
from the company’s non-life portfolio and robust profitability from its life reinsurance business. Prospective
underwriting performance is expected to be supported by ongoing portfolio remediation measures, including reduced participation and/or exit from loss-making non-life treaties, as well as business growth in the more profitable domestic life reinsurance segment. Investment income arising mainly from interest and dividend income continues to contribute positively to operating earnings, despite being negatively impacted by impairment losses in 2020 given the volatility in capital markets caused by COVID-19.

AM Best views Nat Re’s business profile as neutral given its strong relationships with local cedants and access to
business through mandatory local cessions. As the only domestic reinsurer in the Philippines, Nat Re is well-positioned for business opportunities emanating from local government objectives, with Nat Re engaged in the
design/launch of underwriting facilities for the Philippines market. The company maintains a portfolio that is diversified by geography through reciprocal business arrangements with regional and global reinsurers, and whilst still remaining weighted toward catastrophe-exposed property business, recent growth in the domestic life reinsurance segment is viewed to have supported an improvement in portfolio diversification.

AM Best considers Nat Re’s ERM framework as appropriate given the size and complexity of its operations. The
company’s risk management framework and corporate governance capabilities are viewed to have strengthened over
recent years.