National Reinsurance Corporation of the Philippines (Nat Re) has shown a trend of sustained improvement in underwriting performance over recent years, supported in part by tighter cost discipline and a shift in the company's business mix toward profitable domestic life reinsurance products, notes AM Best.
Overall operating results remain positive albeit modest, as strong investment income and realised gains have offset persistent underwriting losses over the past five years. Prospectively, AM Best expects Nat Re’s technical performance to return to technical profitability through continued portfolio remediation measures and improved pricing conditions amid pockets of loss-affected global programmes in which it participates.
AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of "bbb" of Nat Re.
AM Best says that the ratings reflect Nat Re’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Balance sheet strength
The revision of the outlooks to stable reflects Nat Re’s balance sheet strength is underpinned by its risk-adjusted capitalisation that remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), says AM Best.
The company’s moderate underwriting leverage and good liquidity level are in line with those of regional peers.
Risk-adjusted capitalisation improved in 2019 as the company executed on strategic objectives to reduce investment portfolio exposure to market risk. Some volatility in its capital position has been observed in early 2020 as a result of mark-to-market movements, although this impact has been partially mitigated by the company’s investment portfolio de-risking measures.
Prospectively, AM Best expects Nat Re’s capital adequacy to trend lower over the near to medium term, albeit remaining at the strongest level, as the rate of business growth is forecasted to exceed that of its internal capital generation.
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-placed to benefit from regulatory initiatives and upcoming developments in partnership with government agencies, which are expected to strengthen and further diversify its business profile.
AM Best considers the company’s ERM framework as appropriate given the size and complexity of its operations. Nat Re continues to enhance its ERM framework and strengthen its risk management capabilities, systems and tools.
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