A.M. Best Co. has reaffirmed the financial strength rating of B++ (Good) and issuer credit rating (ICR) of “bbb” of National Reinsurance Corporation of the Philippines (PhilNaRe) (Philippines). The outlook for both ratings is stable.

The ratings reflect PhilNaRe’s strong capitalization, conservative investment portfolio and established market presence in the Philippines.

PhilNaRe’s risk-adjusted capitalization, as demonstrated by Best’s Capital Adequacy Ratio (BCAR), remained strong in 2008 and 2009. After the increase in the company’s capital base through its initial public offering in 2007, PhilNaRe plans to accept and retain more business. A.M. Best believes that PhilNaRe’s current risk-adjusted capitalization is adequate to support its future net premium growth in the next three years. According to the company’s forecast, its retention ratio will gradually increase to over 40% from 27% in 2008.

PhilNaRe invested 86% of its invested assets in bonds and in cash and cash equivalent. With this conservative investment portfolio, the company generated a stable investment income.

PhilNaRe is the only domestic reinsurance company in the Philippines. With its long history, the company has established a good presence in the market. Moreover, PhilNaRe also benefits from compulsory cessions, which requires all insurance companies to cede at least 10% of their overseas outward reinsurance placements to PhilNaRe.

Offsetting factors include high catastrophe exposure in the Philippines, the company’s relatively weak international market presence and high loss ratio.

PhilNaRe recorded a high loss ratio of 79.7% in 2008 and 129.1% for the first nine months of 2009. The high loss ratio was mainly attributed to several individual large fire losses, catastrophe-related claims of property and motor, and run-off losses from marine hull business. The company’s current risk-adjusted capitalization is strong; however, if the poor underwriting performance continues, it will create pressure on the capitalization level and stability of the ratings.