Global credit ratings agency AM Best, has announced that it has removed from under review with positive implications, and upgraded the Financial Strength Rating to B+ (Good) from B (Fair) and the Long-Term Issuer Credit Rating to “bbb-” (Good) from “bb+” (Fair) of Himalayan Reinsurance Limited (Himalayan Re) (Nepal).
The agency said that the outlook assigned to these ratings is stable.
According to Best, the ratings reflect Himalayan Re’s balance sheet strength, which the agency assesses as very strong.
Best also cited the organisation’s adequate operating performance, limited business profile and appropriate enterprise risk management.
Last year, Best placed Himalayan Re’s ratings under review with positive implications.
According to the agency, the decision of this rating move was because of their expectation that the company will complete a public listing over the near term.
Fast-forward to January 2024, and Himalayan Re has expanded its business to 31 countries as it has been allowed to do reinsurance business from India.
Moreover, Best noted that the company’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation that is expected to remain at the strongest level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR).
In addition, following Himalayan Re’s public listing in January 2024, Best explained that shareholders’ equity close to doubled, increasing from NPR 7.7 billion ($60 million) as of fiscal year that ended 16 July 2023 (FY23) to approximately NPR 14 billion ($108 million).
Himalayan Re’s financial flexibility and capital management have also bolstered following its public listing.
Best also explained that it views the company’s operating performance as adequate.
The organisation has generated positive earnings despite being in its formative years. However, Best warns that underwriting performance is likely to be negatively impacted by a mismatch between earned premiums and incurred claims during the initial growth phase.
For FY23, Himalayan Re’s combined ratio is expected to be marginally above 100%, and is also expected to stabilise as business growth moderates over the near term.
Lastly, Best noted, that as a start-up reinsurer, Himalayan Re’s operating performance is exposed to potential volatility that is arising from elevated operational risk and business execution risk.
The agency states that prospective underwriting performance will depend mostly on the firm’s overall ability to source good quality domestic business.
