Best’s News & Research Service - June 12, 2015 09:38 AM (EDT)
A.M. Best Affirms Ratings of Bosna Reosiguranje d.d. Sarajevo
London //BestWire// - A.M. Best has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of "bbb-" of Bosna Reosiguranje d.d. Sarajevo (Bosna Re) (Bosnia and Herzegovina [BH]). The outlook for both ratings remains stable.
The ratings reflect Bosna Re's marginal risk-adjusted capitalisation, consistently solid operating results and dominant position within its domestic market. Partly offsetting rating factors include the company's relatively high exposure to illiquid equity investments and underwriting concentration to a small number of cedants. The ratings also consider Bosna Re's exposure to the weak economic conditions in its core market, BH.
Bosna Re's risk-adjusted capitalisation continues to be constrained by its investments in private associates, which represent 44% of consolidated shareholders' funds at year-end 2014. Nonetheless, Bosna Re's risk-adjusted capitalisation is expected to remain at a supportive level, owing to the high retention of profits and modest growth prospects in the near term, as a result of the depressed economic environment in BH.
Despite material losses arising from the severe flooding in the Balkan region, the company's loss ratio decreased to 65% in 2014 (2013: 72%), as a result of the higher retention of premium volumes following a revision in its reinsurance programme. Bosna Re continues to demonstrate an adequate reinsurance strategy in place to mitigate its loss exposures. A.M. Best expects Bosna Re's prospective earnings to remain solid as the company maintains its cautious underwriting strategy.
Bosna Re is the dominant reinsurer in BH, with a market share of approximately 85%. The company's strong competitive position is protected by the high barriers to entry into the BH market through regulatory constraints and associated costs of operating in a small market. Bosna Re also benefits from long-standing relationships with its cedants, some of which are also its shareholders who contributed more than 55% to gross written premiums in 2014. A.M. Best recognises Bosna Re's exposure to the weakened economic and political conditions in BH, but believes that the company's dominant profile is likely to provide a safeguard against any adverse effects on its solid rating fundamentals.
Positive rating actions are unlikely given the current weak economic conditions and limited opportunities in BH for Bosna Re to strengthen its business profile.
Negative rating actions could occur if there is deterioration in the quality of investments or in technical performance, resulting in a weakening of risk-adjusted capitalisation. Additionally, should there be a further decline in the country risk fundamentals of BH, Bosna Re's ratings could be negatively affected.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology .
Key insurance criteria reports utilised:
- Catastrophe Analysis in A.M. Best Ratings
- Evaluating Country Risk
- Insurance Holding Company and Debt Ratings
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
This press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best's Ratings & Criteria Center.
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