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, which remained at the strongest level in 2021, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best views the company’s investment portfolio as having moderate risk. Despite some exposure to corporate bonds and equity investments, the majority of Nat Re’s 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 has 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 is sensitive to natural catastrophe exposure in the Philippines, although 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 2.5% (2017-2021). Net profits showed an improvement in 2021 compared with the prior year, supported by better overall investment results although dragged by poorer underwriting results. Underwriting results in 2021 were negatively impacted by catastrophe losses that affected both the domestic and foreign non-life portfolios. These losses were mitigated in part by robust profitability from its life reinsurance business. AM Best expects the company’s prospective underwriting performance to be supported by ongoing portfolio remediation measures, including reduced participation or exiting from loss-making non-life treaties, as well as business growth in the more profitable domestic life reinsurance segment. Nat Re’s investment income arising mainly from interest and dividend income continues to contribute positively to operating earnings.

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 government initiatives. For instance, Nat Re is engaged in the design and launch of underwriting facilities for the Philippines market, which enables it to write greater business volumes in excess of the level stipulated by the mandatory cessions. The company maintains a portfolio that is diversified by geography through reciprocal business arrangements with regional and global reinsurers, and whilst 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.