MANILA, Philippines – Global insurance credit rating agency AM Best has upgraded its outlook for National Reinsurance Corp. of the Philippines (NatRe) to “stable” from “negative” previously, partly as it cornered local reinsurance deals with the government.

In a statement, AM Best said its financial strength rating of “B++” or “good” for NatRe reflected the “strong” balance sheet and “adequate operating performance, neutral business profile and appropriate enterprise risk management.”

“The revision of the outlooks to stable reflects 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. Overall operating results remain positive albeit modest, as strong investment income and realized gains have offset persistent underwriting losses over the past five years,” AM Best said.

“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 programs in which it participates,” it added.

AM Best noted that “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.”

As such, AM Best said it viewed Nat Re’s business profile to be “neutral given its strong relationships with local cedants and access to business through mandatory local cessions.”

For AM Best, “Nat Re’s balance sheet strength is underpinned by its risk-adjusted capitalization that remains at the strongest level, as measured by Best’s capital adequacy ratio (BCAR).”

“The company’s moderate underwriting leverage and good liquidity level are in line with regional peers. Risk-adjusted capitalization 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,” it said.

GSG


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