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AM Best turns negative on Peak Re and Swiss subsidiary

Rating agency, AM Best has revised the outlooks to Negative from Stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Peak Reinsurance Company Limited (Hong Kong) and its subsidiary, Peak Reinsurance AG (Switzerland).

Best suggests that the negative outlooks of Peak Re and its subsidiary reflect the fact that both macroeconomic headwinds and current unfavourable capital and investment market conditions may exacerbate financial stress on the company’s ultimate parent, Fosun International Holdings Ltd., over the short to intermediate term.

Nevertheless, Best has highlighted that Peak Re has demonstrated a track record of effective mitigation of potential contagion risk stemming from Fosun’s weaker credit fundamentals, and can maintain its own financial strength.

At the same time, Best states that the ratings reflect Peak Re’s balance sheet strength, which it assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

Moreover, Best noted that the ratings also factor in a neutral impact from Fosun too.

 

Meanwhile, Best states that Peak Re’s standalone business fundamental remains stable. The company’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is projected to remain at the strongest level over the short to intermediate term.

The company’s capital and surplus have achieved a compounded average growth rate of 11.8% during the five-year period from 2017 to 2021.

Furthermore, Best highlights that Peak Re has consistently reported favourable operating results over the past five years, with an average return on equity of 4.4% during 2017 to 2021, supporting a strong interest coverage. Various net losses that occurred from major events were controlled at manageable levels by the company’s effective retrocession protection.

Best, concludes by stating that negative rating actions may occur if Fosun exhibits further financial distress, with this giving rise to heightened contagion risk for Peak Re. Additionally, negative rating actions may also occur if there is an adverse and deteriorating trend in operating results or if there is a material deterioration in Peak Re’s risk-adjusted capitalization.

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