AM Best affirms Nat Re credit rating

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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).

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Nat Re’s balance sheet strength is underpinned by its risk-adjusted capitalization, 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 Philippine 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.

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