Moody’s Ratings has updated its outlook from negative to stable for Peak Reinsurance Company Ltd. (Peak Re) after assessing exposure to its majority shareholder’s risks.
Moody’s assessment attributes the change to the risks associated with the reinsurer’s majority shareholder, Fosun International Limited, particularly regarding business growth and financial flexibility. The agency said that these have not materialized as anticipated and are not expected to escalate in the near to mid-term.
Operating under the Insurance Authority (IA) of Hong Kong, Peak Re is minimally influenced by Fosun despite the latter’s 87% ownership stake. Fosun does not hold a majority on Peak Re’s board, facilitating operational independence for Peak Re.
Furthermore, Moody’s noted that Peak Re has implemented rigorous policies regarding transactions with related parties, effectively shielding its financial resources.
The credit agency has also reaffirmed the Baa1 insurance financial strength rating (IFSR) and maintained the Baa3 (hyb) rating for the backed subordinated debt of perpetual securities issued by Peak Re (BVI) Holding Limited, guaranteed by Peak Re.
The affirmation of Peak Re’s ratings is attributed to its robust standalone credit profile, characterized by a strong market position in Asia, solid capitalization, and increasing diversification both in products and geographically. These positives are tempered by Fosun’s substantial debt leverage and liquidity concerns, alongside Peak Re’s vulnerability to natural disaster losses.
While the property and casualty (P&C) segment remains a major contributor to Peak Re’s business, the company has strategically increased its involvement in casualty lines with lower catastrophe risks and expanded its life and health segment focusing on protection business and structured solutions. This diversification strategy is likely to mitigate risk exposure and reduce earnings volatility.
Moody’s projects that Peak Re’s profitability will remain robust in the coming 12 to 18 months, driven by a combination of strategic portfolio adjustments, favorable reinsurance terms, and rising interest rates boosting investment returns.
The company’s underwriting performance significantly improved in 2023, with the P&C underwriting combined ratio dropping to 87.3% from 110.1% in 2022.
However, the potential financial strain from Fosun’s high debt levels and liquidity challenges persists, coupled with the complexity of Fosun’s organizational structure and the potential contagion risk from its weaker subsidiaries. Consequently, Moody’s places Peak Re’s rating one notch below its standalone credit profile to reflect these concerns.
In addition, Peak Re’s exposure to significant catastrophe risks remains a concern, particularly as climate change impacts the predictability of loss data. Despite these challenges, the company’s retrocession programs effectively mitigate net catastrophe losses.
Moody’s noted that improvements in Peak Re’s standalone credit profile, market presence, and profitability could lead to an upgrade in ratings. Conversely, a significant increase in Fosun’s contagion risk, weakening of financial safeguards, deterioration in underwriting profitability, or a decline in the effectiveness of retrocession programs could trigger a downgrade.
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