Thai Reinsurance maintains IFS rating

Fitch Ratings has affirmed the Insurer Financial Strength (IFS) Rating of Thai Reinsurance Public Company Limited (THRE) at ‘A-’ (strong), with a stable outlook.

This affirmation is attributed to THRE’s robust capitalization, favorable company profile, and the anticipated consistency in earnings throughout 2024.

Stable underwriting solidifies rating

According to a news release, forecasts indicate a more stable underwriting performance in 2024, with a maintained combined ratio below 100%. The growth trajectory is expected to be driven by the accident and health line, along with conventional business in a challenging market. The improved combined ratio of 98% in 9M23, compared to 112% in 9M22, was attributed to the absence of COVID-19-related health policies in 2023. An anticipated return on equity (ROE) improvement from 2023, settling around 4%-6%, is projected. The annualized ROE recorded at 5% in 9M23 contrasts with the -9% in 9M22. The reinsurer is expected to maintain selectivity, retaining stringent underwriting terms and conditions, countering inflationary pressure on claims with premium adjustments.

Fitch’s Prism Model categorizes THRE as ‘extremely strong,’ highlighting an extensive buffer supported by a recovery in earnings from pandemic-related policies in 2023 – a situation that is expected to continue through 2024. As of September 2023, THRE’s risk-based capital (RBC) ratio stood at 338%, comfortably surpassing the regulatory requirement of 140%, although a slight decline from the 364% recorded by the end of 2022 (2021: 275%) was noted.

THRE’s company profile is evaluated as ‘favourable,’ grounded in a ‘favourable’ business profile and ‘moderate/favourable’ corporate governance. According to the news release, this stems from the company’s standing as Thailand’s only local non-life reinsurer, consistently capturing 30%-40% of local ceded premiums despite its modest scale. THRE’s strength lies in a well-diversified portfolio and the capability to cater to non-conventional business lines.

A shift in THRE’s asset management strategy is anticipated in 2024, with the company possibly leaning towards riskier assets, including equity investments, to enhance investment yield. As of September 2023, cash, deposits, and fixed-income instruments comprised over 80% of its total invested assets, with a Fitch-calculated risky assets ratio of around 35%, falling below criteria guidelines for the ‘A’ IFS category.

Factors that could affect rating

A prolonged period of weakening profitability, indicated by a combined ratio above 103%, or a persistent drop in capitalization, measured by a decline in the RBC ratio to below 280%, could lead to negative rating actions, according to Fitch.

Consistent strengthening in profitability, evidenced by a combined ratio below 96%, with sustained ROE above 10%, a significant enhancement in THRE’s company profile, and the maintenance of robust capital adequacy are factors that could lead to positive rating actions.

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