Although Asian Re’s capital has strengthened, its underwriting capacity remains relatively small

AM Best has assigned a financial strength rating of B++ (Good) and an issuer credit rating of “bbb” to Asian Reinsurance Corporation (Asian Re) (Thailand). The outlook for both ratings is stable.

The ratings reflect Asian Re’s strong capitalisation, positive underwriting performance and unique organizational structure.

Asian Re is an intergovernmental organisation that was established in May 1979 under the auspices of United Nations Economic and Social Commission for Asia and the Pacific (UN-ESCAP).

Effective 9 July 2005, it opened its associate membership to non-ESCAP member countries of UN and private organisations. Asian Re successfully admitted seven associate members up to the end of December 2007 and raised additional capital of $32.7m over the past two years. The company’s capital and surplus stood at $51.58m as at year end of 2007.

AM Best believes that Asian Re’s current risk-adjusted capitalisation level is adequate to support its business growth for the next three years.

Benefiting from its unique organisation status, Asian Re obtained favourable treatments from its member countries. For instance, the intergovernmental agreement allows all insurance and reinsurance institutions operating in member countries to cede not less than 5% of their outward reinsurance treaties to Asian Re. AM Best believes that these favourable treatments would assist the company in maintaining its good performance.

Asian Re has a stable underwriting performance and has consistently achieved a combined ratio below 100% from 2002 to 2007. Asian Re invests over 90% of its invested assets in cash and fixed income securities, which also have provided a stable income stream.

Offsetting factors include relatively small underwriting capacity and the intense competition in the Asian reinsurance market.

Although Asian Re’s capital level has strengthened in recent years, its underwriting capacity remains relatively small as compared to other reinsurers in Asia.

AM Best believes it will be a challenge for Asian Re to compete in the competitive Asian reinsurance market. In recent years, other reinsurance companies have also strengthened their capitalisation. The additional capacity brought to the market with no recent major reinsurance losses in Asia could dampen expected returns. Notwithstanding Asian Re’s future business plan, its ability to secure profitable new business outside its core markets remains to be seen.