A.M. Best Reaffirms Ratings of National Reinsurance Corporation of the Philippines
March 17, 2011
A.M. Best Co. has reaffirmed the financial strength rating
of B++ (Good) and issuer credit rating (ICR) of “bbb” of National Reinsurance Corporation of
the Philippines (PhilNaRe) (Philippines). The outlook for both ratings is stable.
The ratings reflect PhilNaRe’s adequate capitalization, established market presence in the Philippines
and conservative investment portfolio.
PhilNaRe’s risk-adjusted capitalization, as demonstrated by Best’s Capital Adequacy Ratio (BCAR),
remained strong in 2009 and is expected to be adequate to support the company’s future premium growth
in the next three years, regardless of the expected drop of the BCAR.
As the only domestic reinsurance company in the Philippines and considered its long history, PhilNaRe
has established a good presence in the Filipino market.
PhilNaRe has a conservative investment portfolio, which has enabled the company to generate a stable
investment income over the past five years. Positive investment incomes were influential in offsetting
the underwriting losses over the past five years, except in 2007.
Offsetting rating factors include the deteriorating trend of the combined ratio and high catastrophe
exposure in the Philippines. The unfavorable development of the combined ratio since 2008 arises from
the instability of both the loss and expense ratios. The volatility of the loss ratio is attributed to
several individual fire and marine claims and catastrophe-related losses. The loss ratio is expected to
deteriorate in 2010 partly due to late claims reporting from the cedants. The expense ratio was in an
upward trend in 2009, with the increase of the commission paid and the surge of the provision for
impairment losses from cedants. The latter has been significantly reduced in the third quarter of 2010.
The underwriting performance is expected to remain poor in 2010. To overcome this unfavorable
underwriting result, PhilNaRe continues to tighten its underwriting guidelines in its property business.
Although the company’s current risk-adjusted capitalization is adequate, continuing unsatisfactory
underwriting performance and excess dividend payout will create pressure on the capitalization level,
and thus, on the stability of the ratings.