A.M. Best Assigns Ratings to PVI Reinsurance Company and Affirms Ratings of PVI Insurance

A.M. Best Co. has assigned a financial strength rating (FSR) of B+ (Good) and an issuer credit rating (ICR) of "bbb-" to PVI Reinsurance Company (PVI Re). Concurrently, A.M. Best has affirmed the FSR of B+ (Good) and ICR of "bbb-" of PVI Insurance Corp. (PVI Insurance). The outlook for all ratings is stable. Both companies are domiciled in Hanoi, Vietnam.

The ratings reflect PVI Insurance and PVI Re's adequate risk- based capitalization, the financial commitment from their immediate parent company, PVI Holdings, and support from the strategic partners of PVI Holdings, Talanx AG (Talanx) and Oman Investment Fund (OIF). The ratings also consider the expected favorable operating performance of both companies in the coming years and management's efforts to improve their enterprise risk management framework (ERM).

Both PVI Insurance and PVI Re began operations in August 1, 2011, and are wholly owned by PVI Holdings under the holding's restructuring in 2011. A life operating entity and a fund management company are to be established in 2012 under the same restructuring plan.

PVI Holdings' management will maintain the adequacy of the risk- based capitalization of PVI Insurance and PVI Re with a planned capital infusion, while the transfer of technical expertise from Talanx will further improve the quality of both companies' management and ERM. Additionally, a business exchange with Talanx and Oman Insurance Company (PSC) is expected to strengthen the business profile of PVI Re.

In view of the historical excellent operating performance of PVI Holdings and the underwriting and investment guidelines of PVI Insurance and PVI Re, A.M. Best expects both companies will be able to maintain favorable underwriting and investment results.

Partially offsetting these positive rating factors is the relatively high inflationary environment in Vietnam, which could potentially place further pressure on moving the expense ratio upward, and the support provided to PVI Holdings' cash flow and dividend payout. Other offsetting rating factors for PVI Re include its relatively smaller capital base as compared to its Asian peers and claims reserving practices.

PVI Re strictly follows the regulator when assessing its technical reserves. Although the business written is of a short- tail nature, A.M. Best is concerned (as the business is growing fast and the inflation rate is high) that any adverse development of the reported claims and/or any large catastrophe loss could negatively impact PVI Re's capitalization in the future. On a more positive note, PVI Re's management has informed A.M. Best that the company is currently working on changing its reserving practices.

PVI Insurance and PVI Re will transfer part of their earnings to PVI Holdings to shoulder the latter's cash flow and dividend payout, which could have a negative effect on their risk-based capitalization.

A.M. Best does not expect positive movement on PVI Insurance and PVI Re's ratings in the near to mid term. Negative rating actions could occur if the risk-based capitalization of both companies falls short of A.M. Best's expectations. Another key factor that could trigger negative actions on both companies' ratings is a failure to execute their capital infusion plans on a timely basis.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Understanding Universal BCAR"; "Catastrophe Analysis in A.M. Best Ratings"; "Rating Members of Insurance Groups"; "Rating New Company Formations"; "Risk Management and the Rating Process for Insurance Companies"; "Assessing Country Risk"; and "Measuring Transfer and Convertibility Risk." Best's Credit Rating Methodology can be found at ambest.com/ratings/methodology.

More information:

www.ambest.com.

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