A.M. Best Affirms Ratings of Asian Reinsurance Corporation

A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb” of Asian Reinsurance Corporation (Asian Re or the Corporation) (Thailand). The outlook for both ratings is stable.

The ratings reflect Asian Re’s stable risk-adjusted capitalization, conservative and liquid investment portfolio and strong premium growth. The ratings also recognize the unique organizational structure and the immunities and privileges granted by country members to the Corporation.

Asian Re’s risk-adjusted capitalization, as demonstrated by Best’s Capital Adequacy Ratio (BCAR), has remained stable over the past four years, which was primarily due to the continuous capital injection by its new associate members since 2006. Although Asian Re’s underwriting risk is anticipated to increase due to further expansion into overseas markets, the Corporation’s current risk-adjusted capitalization is adequate to support its forecasted premium growth.

Asian Re has a conservative investment portfolio. As at December 31, 2009, the Corporation invested 97% of its invested assets in cash and deposits.

Asian Re’s gross premiums written (GPW) increased by 15.9% and 40.0% in 2009 and 2008, respectively. According to the Corporation’s business forecast, it aims to achieve 11%-15% premium growth in the coming three years. The high premium growth rate demonstrates the Corporation’s ability to secure new business outside its core markets.

Offsetting factors include Asian Re’s relatively small underwriting capacity, deteriorated underwriting performance and unfavorable loss reserve development.

Asian Re’s combined ratio deteriorated to 103.8% and 105.3% in 2009 and 2008, respectively, from below 100% in previous years. The deteriorated combined ratio was attributed to claims from India, Indonesia and the Philippines. If the underwriting profitability remains poor going forward, it will have a negative impact on the stability of the ratings.

Asian Re relied on the reported claim amounts from its ceding companies to set aside the outstanding reserves and added 5% of the outstanding reserves as incurred but not reported (IBNR). A.M. Best notes that the estimated loss ratio over the loss development years had exhibited an increasing trend, and the increases were, in general, more than the 5% IBNR. A.M. Best is of the opinion that adverse development for previous underwriting years could negatively impact Asian Re’s capitalization in the future.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Natural Catastrophe Stress Test Methodology”; “Assessing Country Risk”; “Understanding Universal BCAR”; and “Risk Management and the Rating Process for Insurance Companies.” Methodologies can be found at http://www.ambest.com/ratings/methodology.