AM Best has affirmed the Financial Strength Rating of B++ (Good), the Long-Term Issuer Credit Rating of “bbb” (Good) and the Philippines National Scale Rating (NSR) of aa+.PH (Superior) of National Reinsurance Corporation of the Philippines (Nat Re) (Philippines). The outlook of these Credit Ratings (ratings) is stable.

These ratings reflect Nat Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

Nat Re’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which remained at the strongest level at year-end 2023. Whilst remaining at the strongest level, the risk-adjusted capitalisation has declined due to significant premium growth in 2023. AM Best views the company’s investment portfolio as having moderate risk with the majority of assets allocated to fixed-income securities issued by the Philippines government. Nat Re’s balance sheet is sensitive to natural catastrophe exposure, although this risk is partially mitigated by its retrocession programme.

Nat Re’s operating performance is assessed as adequate, with a five-year average return-on-equity ratio of 3.6% (2019-2023). In 2023, net profit increased significantly compared to the prior year, primarily due to better underwriting performance and higher investment results. Underwriting performance improved in 2023, driven by a better expense ratio resulting from lower net acquisition costs and management expenses relative to earned premiums. However, the 2023 loss ratio was negatively impacted by outsized losses and reserve strengthening stemming from its non-life portfolio. Investment income, arising mainly from interest and dividend income, continues to contribute positively to operating earnings.

AM Best views Nat Re’s business profile as neutral. The company is the only domestic reinsurer in the Philippines, benefiting from strong relationships with local cedants and access to business through mandatory local cessions. Nat Re is well-positioned for business opportunities emanating from local government initiatives and new service offerings, which include its engagement in the design and launch of underwriting facilities in the Philippine market, enabling it to write greater business volumes in excess of the level stipulated by the mandatory cessions. The company writes both non-life and life reinsurance and its underwriting portfolio is viewed to be moderately diversified by geography. Strong business growth in non-property lines during 2023, mainly driven by the acquisition of foreign agriculture treaties, is viewed to support business diversification; however, effective underwriting risk management remains crucial.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

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