AM Best confirms Nat Re’s stability amid 2023 gains

AM Best has reaffirmed National Reinsurance Corporation of the Philippines (Nat Re) with a Financial Strength Rating of B++ (Good) and a Long-Term Issuer Credit Rating of “bbb” (Good), citing stable outlooks for both.

The Philippines’ only domestic reinsurer has seen its risk-adjusted capitalization remain at the strongest levels despite the challenges of significant premium growth in 2023.

Nat Re’s balance sheet strength, which is rated as strong, is underpinned by its risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR). Although premium growth has reduced capitalization levels, the overall financial position remains solid.

The company’s investment portfolio is considered moderate risk, with most of its assets consisting of fixed income securities issued by the Philippine government. Despite the exposure to natural disasters, this risk is partially offset by a retrocession program that helps manage potential losses.

Operating performance continues to be assessed as satisfactory, with an average five-year return on equity of 3.6%. In 2023, Nat Re reported a notable increase in net profit due to better underwriting performance and improved investment results. The improvement was driven by lower acquisition and management costs, but the non-life portfolio faced significant losses and reserve strengthening, impacting the overall loss ratio.

Meanwhile, investment income, mainly from interest and dividends, continued to contribute positively to the company’s profits.

AM Best also considers Nat Re’s company profile to be neutral. The company benefits from strong relationships with local insurers and mandatory cessions, while new opportunities through government initiatives and local underwriting facilities have enabled it to expand its business beyond mandatory requirements.

Nat Re’s acquisition of foreign agricultural treaties in 2023 has strengthened diversification efforts, but the company will need to maintain strong underwriting risk management to support growth.