Asian Re should improve business plan for better underwriting output: AM Best

Asian Re is anticipated to face ongoing market and regulatory challenges.

Asian Reinsurance Corp. (Asian Re) is expected to execute its business plan which will lead to improved underwriting and operating performance over the medium term, AM Best reported.\

The assessment of Asian Re's balance sheet strength is supported by its expected risk-adjusted capitalisation remaining at the strongest level in the medium term, as measured by Best's Capital Adequacy Ratio (BCAR). 

However, the company has a relatively modest absolute capital base compared to its regional reinsurance peers, making its balance sheet more sensitive to shock events. 

An important factor offsetting the balance sheet strength is Asian Re's high-risk investment strategy, which includes holding a significant amount of cash and deposits in a sanctioned country and a country currently in default on its sovereign debt. 

Whilst the company has reduced its holdings in these assets in recent years, AM Best views this investment strategy as increasing liquidity and credit risk for Asian Re. 

The presence of existing and potential sanctions and economic crises in these countries raises the risk of transfer restrictions and asset write-offs.

Asian Re's operating performance is assessed as marginal, with a five-year average return-on-equity ratio of 0.8% and a combined ratio of 114.2% (2018-2022), as calculated by the credit rating agency. 

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The company has generally reported positive operating results in the past five years, except for 2020 when underwriting performance was adversely affected by a reserve strengthening exercise and higher-than-anticipated claims. 

To address these challenges, Asian Re has implemented remedial measures, including discontinuing unprofitable accounts. As a result, its combined ratio improved to 103.3% in 2022 (versus 107.4% in 2021). 

Looking ahead, AM Best expects Asian Re to implement a business plan focused on enhancing underwriting results, supported by strong investment returns, thereby contributing to positive overall earnings in the medium term.

Asian Re is anticipated to face ongoing market and regulatory challenges; however, the company remains committed to implementing various strategic initiatives and forming business partnerships. 

These efforts are designed to expand its underwriting portfolio and enhance its market presence in the medium term.