The National Reinsurance Corporation of the Philippines (Nat Re), the Philippines’ sole professional reinsurer, has been assigned a financial strength rating of PRS A, with a stable outlook, by Philippine Rating Services Corporation (PhilRatings).
The rating takes account of efforts that Nat Re has made to alleviate the economic headwinds it faces, which includes a “gradual revision” of its business mix.
A PRS A rating means that an insurer has strong financial security characteristics, but is somewhat more likely to be affected by adverse business conditions compared to higher-rated insurance companies.
PhilRatings explained that its rating considers Nat Re’s “solid market franchise,” the important role it plays in the development of the domestic and regional insurance industry, its shareholders of good standing, the company’s experienced management, its sound investment portfolio, and its more than adequate capital.
However, it also acknowledged that Nat Re has been facing a number of external headwinds, including the general growth in catastrophe losses that the reinsurance industry has experienced over the last three to five years.
This was evident in the company’s loss experience in 2021 and in the first half of 2022, but it added that Nat Re has taken steps to mitigate the impact of this trend and lower the volatility in its loss experience by gradually revising its business mix.
Also weighing down on Nat Re’s performance is accelerating inflation, with management having already publicly recognised the threat that the inflation surge poses to the company’s operating income and profitability.
And, while its leaders have said they will closely monitor inflation movements going forward, the accompanying risk of rising interest rates also poses a threat, PhilRatings warned.
While interest rate growth will improve the yield of Nat Re’s overall portfolio in the medium- to long-term, it adversely affected the present value of the company’s investment assets as at the end of H1, it noted.
“While the Company has taken the necessary steps to mitigate the risks associated with the abovementioned challenges, these factors may continue to affect the Company’s performance in the short- to medium-term,” PhilRatings analysts concluded.