AM Best Affirms Credit Ratings of PVI Reinsurance Joint-stock Corporation
AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of "bbb" of PVI Reinsurance Joint-stock Corporation (PVI Re) (Vietnam). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect PVI Re's balance sheet strength, which AM Best categorises as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM). In addition, PVI Re benefits from rating enhancement from HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G. or the HDI group).
Although PVI Re's operations account for a small portion of HDI V.a.G.'s overall revenues and earnings, the company is viewed to be a strategic component to the HDI group's international expansion plans.
PVI Re's balance sheet strength assessment is underpinned by risk-adjusted capitalisation that remains at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR). Risk-adjusted capitalisation showed a notable decline in 2019 given higher capital requirements arising from significant business growth in 2019. While the company has exhibited a high dividend payout ratio over recent years, retained earnings have remained sufficient to support business growth. A further offsetting balance sheet factor continues to be the company's high retrocession usage and dependence to enable the underwriting of large commercial property, energy and engineering risks.
AM Best views the company's operating performance as strong, as demonstrated by a five-year average return-on-equity ratio of 16% (2015-2019). Underwriting performance has shown good stability over time, supported by affiliated domestic business, particularly in the commercial and industrial lines. Underwriting performance in the first half of fiscal-year 2020 remained stable compared with the prior period. While lower insurance demand for property and engineering reinsurance, due to dampened economic activity, could pose downside risks to overall earnings in the near term, AM Best expects the company's prospective operating results to remain strong, albit closely tied to the performance of its major cedant and affiliate, PVI Insurance Corporation (PVI Insurance). In addition, AM Best notes an increasing dependence on investment income to support earnings, particularly in recent years, which could lead to earnings volatility given lower investment returns that are expected over the near term.
PVI Re's business profile is assessed as limited. PVI Re is the smaller of two domestic reinsurers in Vietnam, with a significant volume of business arising from PVI Insurance. PVI Re's long-term strategy includes reduced dependence on PVI Insurance through more-focused efforts to grow other business. Apart from the high cedant concentration risk arising from PVI Insurance, PVI Re is also viewed to have a moderate business concentration to catastrophe-exposed property and engineering lines, which are largely sourced domestically, albeit that catastrophe retrocession is in place to protect against severe events.
AM Best considers the company's ERM approach as appropriate given the size and complexity of its current operations. Going forward, AM Best expects PVI Re to benefit further from the HDI V.a.G. group's international product expertise in areas of risk selection, pricing and reserving, as well as its oversight and support in respect of risk management.
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