AM Best on Thursday (29 Aug) revised the outlooks for Peak Reinsurance Company Limited (Peak Re) and its subsidiary, Peak Reinsurance AG, to ‘Stable’, from ‘Negative’.
The rating agency has also affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” (Excellent) for both entities.
AM Best attributed the outlook revision to its view that its parent company, Fosun International Holding Ltd, has stabilised its credit condition and the reduced likelihood of a potential adverse credit event that could expose Peak Re to contagion risk.
Fosun’s financial leverage has been declining over the past few years due to adjustments in its investment portfolio and debt management. However, AM Best noted that “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.”
The rating agency also added 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,” AM Best added.
Other ratings contributors
AM Best noted that Peak Re’s net profit reached a record level of US$200m 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,” AM Best said, adding that the reinsurer’s IFRS 17 non-life combined ratio improved significantly in 2023 due to lower catastrophe losses.
AM Best considers Peak Re’s non-life portfolio to be diversified by product lines and geography, with a focus on the Asia-Pacific region.
AM Best also noted that its life reinsurance business has shown solid growth and continues to offer business and capital diversification.
The company is expanding its traditional risk business in the life segment, particularly health products such as medical and critical illness in China. Additionally, Peak Re is building its market presence in offering structured reinsurance solutions for capital efficiency purposes, AM Best said.
Investment yield also improved in 2023, supported by favourable changes in investment fair values. The company has been de-risking its investment portfolio by increasing the proportion of high-quality fixed-income securities and reducing exposure to equities.
Peak Re’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is expected to remain at the strongest level over the short to intermediate term. Under IFRS 17 and IFRS 9 accounting standards, Peak Re’s capital and surplus increased by 14.3% to US$1.3bn at year-end 2023.
This growth was mainly due to a strong rebound in operating earnings and favourable changes in investment valuations, AM Best aid. Other supportive factors include good financial flexibility, a prudent investment risk profile, a comprehensive retrocession programme, and strong liquidity.
The rating assessment comes just after Peak Re announced strong H1 results for 2024. Based on unaudited financial results, the reinsurer reported a US$124.2m net profit, and growth in its life as health business as well as P&C GWP, despite a slight decrease in combined operation ratio.