National Reinsurance Corporation Maintains Strong Financial Ratings
In a recent affirmation, AM Best has assigned the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of 'bbb' (Good) to National Reinsurance Corporation of the Philippines, commonly known as Nat Re. This notable evaluation also includes a Philippines National Scale Rating (NSR) of aa+.PH, classified as Superior. With a stable outlook on these ratings, Nat Re showcases its resilience in the competitive reinsurance market.
Evaluating Nat Re's Balance Sheet Strength
The ratings from AM Best are a testament to Nat Re’s robust balance sheet strength, assessed as strong. This evaluation is largely influenced by the company’s risk-adjusted capitalization, as evidenced by Best's Capital Adequacy Ratio (BCAR), which remained at the highest level by the end of 2023. Although the capitalization appears strong, it experienced a decline in conjunction with substantial premium growth during the same year.
AM Best acknowledges Nat Re’s investment portfolio, which features moderate risks, primarily comprised of fixed-income securities linked to the Philippine government. However, it also notes that the balance sheet is vulnerable to natural disasters, a risk partially counterbalanced by an effective retrocession programme, aiding in risk mitigation.
Assessing Operational Performance
Nat Re's operating performance is characterized as adequate, highlighted by an average return on equity of 3.6% over five years from 2019 to 2023. A remarkable surge in net profit was recorded in 2023 compared to the previous year, attributed to improved underwriting performance and a positive impact from investment results. The underwriting results benefitted from a favorable expense ratio, as net acquisition costs and management expenses decreased relative to earned premiums.
Nonetheless, the loss ratio faced challenges during 2023, primarily because of unusual losses and reserve strengthening corresponding to its non-life portfolio. Investment income, predominantly from interest and dividend revenues, continues to bolster operating earnings significantly.
Business Profile and Opportunities
AM Best assesses Nat Re’s business profile as neutral, noting that it stands as the sole domestic reinsurer in the Philippines. This unique position allows Nat Re to foster strong relationships with local cedants while gaining business through mandatory local cessions. The company is strategically poised to leverage opportunities arising from local government initiatives, enhancing its service offerings.
Notably, Nat Re has engaged in the development and launch of underwriting facilities, enabling it to increase business volumes beyond the levels dictated by the mandatory cessions. The company’s portfolio encompasses both non-life and life reinsurance, showcasing a moderate level of geographic diversification. In 2023, Nat Re witnessed strong growth in non-property lines, mainly attributed to the acquisition of foreign agriculture treaties, further diversifying its offerings. However, effective underwriting risk management remains imperative for sustained growth.
Recognition of AM Best Ratings
It is standard practice for ratings to be communicated to the rated entities before being made public. According to AM Best, unless otherwise stated, these ratings were not modified after the communication phase. The affirmation of ratings is crucial for stakeholders as they navigate the reinsurance landscape.
Insights on AM Best
AM Best is globally recognized as a leading credit rating agency, news publisher, and data analytics facilitator, specifically within the insurance realm. Based in the United States, AM Best operates in over 100 countries, with regional offices in major global cities, including London, Amsterdam, Dubai, Hong Kong, Singapore, and Mexico City. The company provides credit ratings that serve as a vital resource for evaluating the financial health and risk profiles of entities across the insurance industry.
Frequently Asked Questions
What are the financial ratings assigned to Nat Re?
AM Best has assigned a Financial Strength Rating of B++, a Long-Term Issuer Credit Rating of 'bbb', and a National Scale Rating of aa+.PH.
How does Nat Re's balance sheet strength compare in the industry?
Nat Re's balance sheet strength is assessed as strong; however, it has experienced some decline due to rapid premium growth, which is a normal market response.
What impact did the underwriting performance have on Nat Re's profitability?
Underwriting performance significantly improved in 2023, leading to higher net profits, mainly due to better expense management and lower acquisition costs.
How does Nat Re manage its investment risks?
Nat Re maintains a moderate-risk investment portfolio, with a majority of assets in fixed-income securities, and has established retrocession programs to mitigate risks associated with natural catastrophes.
What distinguishes Nat Re from other reinsurers?
Nat Re is the only domestic reinsurer in the Philippines, which positions it uniquely to build strong relationships and capitalize on local business requirements through mandatory cessions.
