Mongolian National Reinsurance Sees Stable Credit Ratings

Mongolian National Reinsurance at a Glance

Mongolian National Reinsurance JSC, often referred to as Mongolian Re, has recently received an affirmation of its financial strength ratings by AM Best. The Financial Strength Rating stands at B (Fair), while the Long-Term Issuer Credit Rating is assessed at 'bb+' (Fair). This affirmation signifies a stable outlook for the company, providing a snapshot of its current operational standing.

Understanding the Ratings

These ratings reflect a comprehensive evaluation of Mongolian Re's balance sheet strength alongside its operational capabilities. According to AM Best, Mongolian Re's balance sheet strength is rated as very strong. This strong evaluation is attributed to the company's risk-adjusted capitalization, assessed through Best’s Capital Adequacy Ratio (BCAR), which has been determined at the highest level.

Financial Metrics Highlight Stability

From 2018 to 2023, Mongolian Re has experienced a consistent increase in adjusted capital and surplus, achieving a compound annual growth rate (CAGR) of 3.4%. However, the company faced challenges as it utilized a majority of its reserves connected to index-based livestock insurance (IBLI) to cover substantial claims resulting from a natural catastrophic event. Projections indicate that Mongolian Re aims to restore its reserves swiftly to support future claims, highlighting a commitment to financial responsibility and stability.

Performance Insights

Mongolian Re's operational performance has been assessed as adequate, with notable achievements in gross written premiums (GWP). The company reported a remarkable CAGR of 30.9% in GWP between 2018 and 2023. Its return on equity (ROE) averaged 6.2% during the same time span, primarily fueled by significant investment income that averaged a net yield of 11.0% over five years.

Challenges in Underwriting Performance

Despite the favorable GWP growth, Mongolian Re's underwriting performance has been troubled by volatility stemming from natural catastrophe losses and a relatively high management expense ratio. The company is actively working to mitigate these factors by expanding its premium base and enhancing operational efficiencies in the medium term. Although upcoming IBLI losses may pose issues for the bottom line, solid investment income is expected to support recovery efforts.

Business Profile and Market Position

AM Best characterizes Mongolian Re's business profile as limited compared to its international counterparts. Established as a wholly owned entity of the Ministry of Finance, the company has been operational since 2014, actively contributing to Mongolia's economic landscape. It plays an essential role in supporting the agriculture sector, particularly by managing the IBLI pool, which provides essential insurance services to the livestock sector and promotes social stability.

Diversification and Expansion Efforts

The company has diversified its offerings by including various lines of reinsurance such as property, motor, aviation, liability, and personal accident since its inception. In 2023, Mongolian Re reported a GWP of MNT 6.6 billion (approximately USD 2.5 million). Despite potential challenges due to high natural catastrophe risks, the company has secured a competitive position in the livestock and motor reinsurance sectors.

Risk Management and Future Outlook

The company's enterprise risk management (ERM) is deemed appropriate, with a clearly defined risk appetite and regular monitoring of critical risk indicators. Mongolian Re utilizes catastrophe modeling and submits regular risk and solvency reports to the Financial Regulatory Commission, ensuring compliance and proactive management of its risk profile.

Potential for Rating Adjustments

While negative rating actions could occur if the company's risk-adjusted capitalization deteriorates significantly due to unmanaged underwriting or investment risks, AM Best remains cautiously optimistic. Positive rating adjustments could be possible if Mongolian Re improves its underwriting performance and continues to achieve higher investment returns while managing its operational expenses.

Frequently Asked Questions

What are the current ratings for Mongolian National Reinsurance?

The current ratings are a Financial Strength Rating of B (Fair) and a Long-Term Issuer Credit Rating of 'bb+' (Fair), both of which have a stable outlook.

How has Mongolian Re performed financially in recent years?

The company has reported significant growth in gross written premiums, achieving a CAGR of 30.9% from 2018 to 2023, alongside an average return on equity of 6.2%.

What role does Mongolian Re play in the local economy?

Mongolian Re supports the agriculture sector by providing crucial insurance services through its management of the IBLI pool, helping to stabilize herder households’ livelihoods.

What are the future prospects for Mongolian Re?

The company aims to restore its reserves and enhance operational efficiency while expanding its premium base, with the possibility of positive rating actions if improvements are sustained.

How does AM Best assess Mongolian Re's risk management?

AM Best considers the company's enterprise risk management to be appropriate, characterized by a defined risk appetite and regular monitoring of key risk indicators.

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