Philippines’ Nat Re’s underwriting performance seen to improve: AM Best

Nat Re's enterprise risk management approach is appropriate for its current size and complexity.

National Reinsurance Corporation of the Philippines (Nat Re) is expected to have better underwriting performance through portfolio adjustments, including reducing participation in unprofitable non-life treaties and expanding in the more profitable domestic life reinsurance segment and specialty lines, said AM Best.

The operating performance is considered adequate, with a five-year average return-on-equity ratio of 2.3% (2018-2022). 

However, net profit declined in 2022 due to lower investment income, impacted by investment impairment and fair value losses on equity investments. Underwriting improved in 2022 but remained unprofitable due to unfavourable reserve development and higher COVID-19-related claims. 

Despite this, investment income from interest and dividends contributed positively to earnings, even though it decreased in 2022.

AM Best's assessment of Nat Re is based on its strong balance sheet strength, adequate operating performance, neutral business profile, and effective enterprise risk management.

Its balance sheet strength is supported by its robust risk-adjusted capitalisation measured by Best's Capital Adequacy Ratio (BCAR), which remained at its highest level in 2022. While the company does have some exposure to corporate bonds and equities, the majority of its portfolio consists of government-issued fixed-income securities from the Philippines. 

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The company has been gradually reducing its allocation to equity investments to reduce risk. Although the balance sheet is sensitive to natural catastrophes, retrocession helps mitigate this risk.

Nat Re's business profile is viewed as neutral, as it is the sole domestic reinsurer in the Philippines. The company has strong relationships with local cedants and benefits from mandatory local cessions.

Nat Re is well-placed to capitalise on local government initiatives and has been involved in launching underwriting facilities in the Philippines market, allowing it to write more business beyond the mandatory cessions. Its underwriting portfolio is moderately diversified by geography, covering both non-life and life reinsurance. The company's focus on domestic life reinsurance has improved its portfolio diversification.

AM Best considers Nat Re's enterprise risk management approach appropriate for its current size and complexity. The company has strengthened its risk management framework and corporate governance capabilities in recent years.