Nat Re receives credit rating of PRS A 

The National Reinsurance Corporation of the Philippines (Nat Re), the Philippines’ sole professional reinsurer, has been assigned a financial strength rating of PRS A, with a stable outlook, according to a report by Manila Bulletin.

Philippine Rating Services Corporation (PhilRatings) said its PRS A rating means that an insurer has strong financial security characteristics, but is somewhat more likely to be affected by adverse business conditions compared to higher-rated insurance companies.

A Stable Outlook indicates that the rating is likely to be maintained or to remain unchanged in the next 12 months.

The assigned financial strength rating and Outlook take into consideration Nat Re’s solid market franchise and the important role it plays in the development of the domestic and regional insurance industry, given its status as the Philippines’ sole domestic professional reinsurer.

It also factored-in Nat Re’s shareholders of good standing, experienced management, sound investment portfolio, more than adequate capital, and the external headwinds which weigh down and affect the Company’s performance.

As the only domestic professional reinsurance firm in the country, Nat Re is considered to have a solid market franchise.

Nat Re has a unique advantage granted by the law, which is that of being entitled to take up a minimum 10 percent share of all the outward reinsurance business of domestic insurance companies, and which would otherwise be ceded abroad.

As of end-2021 and as of end-March 2022, low-risk fixed income investments made up 83.2 percent and 83.6 percent, respectively, of Nat Re’s total investment portfolio.

Equity securities, on the other hand, accounted for 16.8 percent and 16.4 percent of the Company’s total investment portfolio as of end-2021 and as of end-March 2022, respectively. Nat Re had P9.1 billion in investment assets, as of end-March 2022.

Notwithstanding its sound investment portfolio and more than adequate capital, Nat Re has been facing a number of external headwinds.

Over the last three to five years, the industry has seen that growth in catastrophe losses has outpaced the growth in premium rates. The foregoing was also evident in the Company’s loss experience in 2021 and in the first half of 2022.

To mitigate the potential impact of higher catastrophe losses on the Company’s performance moving forward, Nat Re seeks to lower the volatility in its loss experience by gradually revising its business mix.

Also weighing down on the Company’s performance is accelerating inflation as it directly affected the input costs incurred by the businesses of the Company.

The other headwind that the Company faces is rising interest rates. While such will improve the yield of the Company’s overall portfolio in the medium- to long-term, it adversely affected the present value of the Company’s investment assets as of end-June 2022.

In the first six months of 2022, Nat Re recognized an impairment loss on its available-for-sale (AFS) equity securities amounting to P84.8 million and a fair value loss on its held-for-trading (HFT) equity securities amounting to P24.8 million.

While the Company has taken the necessary steps to mitigate the risks associated with the abovementioned challenges, these factors may continue to affect the Company’s performance in the short- to medium-term.