AM Best Affirms Credit Ratings of Vietnam National Reinsurance Corporation

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

The ratings reflect VINARE’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).

VINARE’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation that remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s balance sheet strength assessment is further supported by the stability of its risk-adjusted capitalisation, modest underwriting leverage and retrocession counterparties of good credit quality. AM Best views the investment portfolio to be of moderate risk. Although the majority of investments assets are allocated to term deposits, the company’s investment strategy is characterised by a moderate level of equity investment leverage, private equity investment holdings that create asset liquidity risk, and investments that are held in domestic insurers, which in AM Best’s view creates correlation risk with the company’s financial performance. Other balance sheet considerations include the company’s high dependence on retrocession to manage its exposure to catastrophe events, accumulations and large single risks, and its high dividend payout ratio. Whilst retained earnings have remained sufficient to support business growth historically, robust business growth in 2019 has lowered the company’s regulatory solvency margin ratio and is expected to continue doing so over the near term. Nonetheless, the company is expected to still maintain a healthy buffer above the regulatory minimum solvency level.

AM Best views VINARE’s operating performance as strong, as evidenced by a five-year average combined ratio and return-on-equity (ROE) ratio of 93.2% and 8.9% (2015-2019). Despite this, the company’s combined ratio deteriorated to 100.4% in 2019 from 92.3% in 2018, following increased loss experience, particularly from property, marine hull and fishing boat lines of business. In addition, a shift in the company’s business mix in 2019, which saw greater allocation towards lower margin personal accident business, also resulted in higher combined ratios. Prospectively, AM Best expects underwriting results to improve following VINARE’s portfolio remediation measures, rate increases and tighter underwriting standards. Investment income in 2019 continued to be supportive of overall operating earnings as evidenced by the investment yield including realised gains of 7.8% in 2019 (2015–2019 average: 7.4%). However, excluding the one-off realised gains, investment returns in 2019 have been impacted by the volatility in the capital markets. Whilst further weakness in the capital markets could continue to dampen investment income arising from the company’s equity holdings, the impact and volatility to overall investment income is in part mitigated by the diversified sources of investment income arising from different asset classes.

AM Best assesses VINARE’s business profile as neutral. The company is the larger of two domestic reinsurers in Vietnam, with gross written premium (GWP) of VND 2.2 trillion (USD 96 million) in 2019. The company benefits from long-standing relationships with a number of local cedants, including some insurers that hold a minority stake in VINARE, which provides a competitive advantage for market access. The company’s underwriting portfolio is moderately diversified by line of business, and to some extent by geography with over 75% of GWP emanating from Vietnam.

AM Best considers the company’s ERM framework as appropriate given the size and complexity of its operations. AM Best views the company’s risk management framework and capabilities to have benefited over a number of years from the technical support and expertise provided by Swiss Reinsurance Company Ltd, VINARE’s second largest shareholder.

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 Guide to 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.

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