AM Best Affirms Credit Ratings of Asian Reinsurance Corporation

AM Best has affirmed the Financial Strength Rating of B+ (Good)
and the Long-Term Issuer Credit Rating of “bbb-” of Asian Reinsurance
Corporation (Asian Re) (Thailand). The outlook of these Credit Ratings
(ratings) is stable.

The ratings reflect Asian Re’s balance sheet strength, which AM Best
categorizes as strong, as well as its marginal operating performance,
limited business profile and appropriate enterprise risk management
(ERM).

Asian Re’s balance sheet strength is underpinned by its risk-adjusted
capitalization, which AM Best expects to remain at the strongest level
over the medium term. Capital adequacy is supported by the company’s low
underwriting leverage and investment portfolio comprising principally
cash and short-term deposits. Despite this, a significant portion of its
cash and deposits are held offshore in a country subject to sanctions,
which continues to be a significant offsetting balance sheet factor. AM
Best views this investment strategy as creating increased liquidity and
credit risk for Asian Re, as the imposition of existing and future
sanctions may drive a heightened potential for transfer restrictions
that may impact the company’s ability to access its funds in a timely
manner.

Asian Re’s overall earnings remain driven by a steady stream of
investment income, which has helped to offset unfavorable technical
results over a number of years. The company’s five-year average return
on equity ratio remains profitable at 3.1% (2014-2018). However, the
average combined ratio over the same period exceeds 115%. Due to its
small net premium base and adverse reserve development, Asian Re’s
underwriting performance has exhibited a relatively high level of
volatility.

Following catastrophe events in Thailand during 2011 and 2012, which led
to a need to recapitalize the company, Asian Re faces challenges in
growing its premium base and rebuilding its presence in the regional
reinsurance market. The company continues to implement a number of
strategic initiatives aimed at expanding its underwriting portfolio and
market presence. However, the ability of the company to execute on these
actions successfully, coupled with continued competitive market
conditions, remain key challenges at present.

Asian Re’s ERM framework is at an evolving stage, with the company
taking steps to develop the identification, management and mitigation of
key risks. As the scale and complexity of the company’s operations
continue to increase, Asian Re will need to demonstrate improvements in
its risk management capabilities.

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

This press release relates to Credit Ratings that have been published
on AM Best’s website. For all rating information relating to the release
and pertinent disclosures, including details of the office responsible
for issuing each of the individual ratings referenced in this release,
please see AM Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and AM Best press releases, please view Guide
for Media - Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.

AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit www.ambest.com
for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

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