HONG KONG--(BUSINESS WIRE)--AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” (Excellent) of Peak Reinsurance Company Limited (Peak Re) (Hong Kong) and its subsidiary, Peak Reinsurance AG (Switzerland).
The Credit Ratings (ratings) reflect Peak Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. In addition, the ratings factor in the neutral impact from the company’s ultimate parent, Fosun International Holding Ltd. (Fosun).
The revision of the rating outlooks to stable from negative reflects AM Best’s view of Fosun’s stabilised credit condition and the subdued likelihood of a potential adverse credit event at the company, which may expose Peak Re to contagion risk over the short to intermediate term. Fosun’s reported financial leverage has been declining over the last few years as it continues to adjust its investment portfolio and manage its debt profile. While macroeconomic conditions, rising interest costs and volatile capital markets remain headwinds, Fosun has demonstrated access to funding and has received bank support to partially mitigate liquidity and refinancing risks. Moreover, AM Best notes that Peak Re has demonstrated a track record of effective mitigation of potential contagion risk stemming from Fosun’s weaker credit fundamentals and can maintain its own financial strength. The ring-fencing mechanism includes board composition, stringent related-party transaction policies and regulatory oversight.
Peak Re’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is projected to remain at the strongest level over the short to intermediate term. Under IFRS 17 and IFRS 9 accounting basis, the company’s capital and surplus increased by 14.3% to USD 1.3 billion at year-end 2023, mainly supported by a strong rebound in operating earnings and favourable changes in investment valuations. Other supportive factors of the balance sheet strength include the good level of financial flexibility in accessing traditional and alternative capital markets, overall prudent investment risk profile, comprehensive retrocession programme and strong liquidity.
Under the new accounting basis, Peak Re’s net profit reached a record level of USD 200 million in 2023, supported by improvements in reinsurance service results and investment performance. The company has continued to restructure its non-life underwriting portfolio with an aim to improve technical margins and rein in its catastrophe exposure. The IFRS 17 non-life combined ratio strengthened significantly in 2023, supported by lower catastrophe losses. The life reinsurance business has achieved solid growth over the last few years and continues to offer business and capital diversification. Investment yield improved significantly in 2023, supported by favourable changes in investment fair values, while the company continues to de-risk its investment portfolio by increasing the proportion of high-quality fixed-income securities and reducing exposure to equities. The company continues to maintain a lean and efficient operational model.
Peak Re’s non-life portfolio is diversified by product lines and geography, with a focus on the Asia-Pacific region. The company continues to expand its traditional risk business in the life segment, with a focus on health products including medical and critical illness in China. Moreover, the company has been building its market presence in offering structured reinsurance solutions to clients for capital efficiency purposes.
Negative rating actions may occur if Fosun were to exhibit adverse financial distress, thereby giving rise to heightened contagion risk to Peak Re. Negative rating actions may also arise if there is an adverse and deteriorating trend in Peak Re’s operating results or if there is a material deterioration in its risk-adjusted capitalisation. While unlikely over the short to intermediate term under the current ownership structure, positive rating actions may occur if Peak Re demonstrates a sustained and robust level of risk-adjusted capitalisation with supportive operating profitability, while being exposed to a more subdued level of negative parental contagion risk.
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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