Company, however, is more sensitive to shock events
AM Best has affirmed the financial strength rating of B+ (Good) and the long-term issuer credit rating of “bbb-“ (Good) for Asian Reinsurance Corporation (Asian Re) based in Thailand, with the ratings’ outlook remaining positive.
The credit agency says that these ratings reflect Asian Re’s balance sheet strength, which AM Best assesses as strong. This assessment includes the company’s marginal operating performance, limited business profile, and appropriate enterprise risk management (ERM).
The positive outlook also suggests that successful execution of Asian Re’s business plan is expected to improve underwriting and operating performance metrics in the intermediate term.
The balance sheet strength of Asian Re is supported by its risk-adjusted capitalization, which was at the strongest level at year-end 2023. This level is expected to be maintained over the medium term.
However, Asian Re has a modest absolute capital base of $73 million at year-end 2023, which is small compared to regional reinsurance peers, making its balance sheet more sensitive to shock events.
Another factor affecting balance sheet strength is Asian Re’s high-risk investment strategy. This includes significant cash and deposits in a sanctioned country and one that defaulted on its sovereign debt.
Despite reducing some of these holdings in recent years, AM Best views this strategy as increasing liquidity and credit risk for Asian Re due to potential sanctions and economic crises in these countries.
Marginal operating performance, but improving
Asian Re’s operating performance is considered marginal but shows an improving trend. Over the past five years, the company has shown a return-on-equity ratio averaging 1.5% and a combined ratio of 110.3%. Positive operating results were reported in four of the past five years.
In 2020, underwriting performance was affected by reserve strengthening and higher-than-expected claims. Remediation efforts led to a combined ratio improvement to 101.6% in 2023 from 103.3% in 2022, despite losses from the Turkey earthquake and Typhoon Doksuri.
AM Best expects that Asian Re will improve underwriting results and, along with strong investment returns, support positive earnings in the future.
Asian Re’s business profile is considered limited due to its position as a regional non-life reinsurer with a gross premium base of $26 million in 2023. The company writes treaty and facultative business in Asia, the Middle East, and Africa. Asian Re has been growing its business with a focus on diversification by geography and line of business, following a significant contraction in 2011 due to severe catastrophe events and recapitalization needs.
Despite ongoing market and regulatory challenges, Asian Re is expected to continue implementing strategic initiatives and business partnerships to expand its underwriting portfolio and market presence in the medium term.
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