Bangkok--21 Nov--Fitch Ratings
Fitch Ratings has assigned Thai Reinsurance Public Company Limited (THRE) an Insurer Financial Strength (IFS) Rating of 'A-' (Strong). The Outlook is Stable.
KEY RATING DRIVERS
The IFS Rating on THRE reflects the company's 'Favourable' business profile, 'Strong' capitalisation, 'Good' investment and liquidity risk, which are offset by a challenge for the company to sustain its financial performance and earnings.
Fitch assesses THRE's business profile as 'Favourable' compared with all other Thai non-life insurance companies and scores THRE's business profile at 'a-' under the credit factor scoring guideline. The company's market share has grown to nearly 40% of locally ceded premiums in 2018 and it has a sound reputation for providing other insurance-related services, such as actuarial services. The business risk profile appears to be moderate given THRE's volatile earnings, although this is partly offset by a favourable diversification in the local market in terms of product lines and domestic distribution channels.
Fitch considers THRE's capitalisation as 'Strong', which supports its overall credit profile and it compares well against Fitch's guideline for 'A' IFS rated reinsurers. THRE has maintained its risk-based capital ratio at over 300%, above the 140% local regulatory minimum, despite posting operating losses in the last few years. The reinsurer's capital position was scored 'Very Strong' in terms of Fitch's Prism Factor-Based Capital Model (FBM) using end-2018 financials, which then improved to 'Extremely Strong' by end-1H19, underpinned by an earnings recovery, quality investments, better risk distribution of reinsurance liabilities, and sufficient retrocession programmes.
The main constraint on THRE's rating is its volatile earnings performance. THRE's combined ratio rose to 114% in 2018 (2016: 92%), but it then improved to 107% by end-1H19, mainly driven by fewer claims from its long-term non-conventional business. The average combined ratio over 2016-2018 of 104% remains within Fitch's guideline for 'BBB' IFS rated reinsurers, but contribution to revenue by the company's non-insurance activities is volatile. THRE expects profit to recover over the next three years as unprofitable businesses are phased out.
Fitch expects THRE to maintain investment risks at a manageable level even as it increases investments in risky assets to enhance returns while interest rates remain low. The company allocated about 50% of its invested assets to stock and unit trusts and more than 20% to sound-quality bonds at end-1H19. The reinsurer retains robust liquidity, with the ratio of liquid assets to reserves at more than 200% at end-1H19.
RATING SENSITIVITIES
- Downgrade sensitivities include:
- A weakening profitability as indicated by a combined ratio of higher than 103% for a prolonged period ; or
- A persistent drop in capitalisation measured by a decline in THRE's RBC ratio to below 280% and deterioration in the Prism FBM score to below well into the 'Strong' level for an extended period.
- Upgrade sensitivities include:
- A consistently strengthening profitability as indicated by THRE's combined ratio sustained at below 96% with ability to maintain return on equity at above 10% for a prolonged period; and
- Improvement of THRE's capitalisation level, with Fitch's Prism FBM score consistently maintained at well into the 'Extremely Strong' level.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.
For more information on our ESG Relevance Scores, visit www.fitchratings.com/esg
Additional information is available on www.fitchratings.com