S&P Upgrades Thai Re’s Ratings to ‘BBB+’

September 9, 2004

Standard & Poor’s Ratings Services announced that it has upgraded the long-term local currency counterparty credit rating and financial strength rating on Thai Reinsurance Public Co. Ltd. (Thai Re) to ‘BBB+’ from ‘BBB’, with a stable outlook.

The upgrade reflects improved underlying technical performance, as well as the recent balance strengthening of Thai Re’s position, through strategic restructuring, said S&P. “This will support the reinsurer through the current softening cycle,” it added. “The company recently completed a restructuring of its business, which further enhanced the reinsurer’s focus on targeted business lines and improved its major loss frequency and severity experience in 2003 and in the first half of 2004.”

S&P also noted: “Thai Re has used its improved underwriting profits to strengthen its balance sheet through the significant bolstering of its loss fluctuation reserves (LFR), which form a sizeable part of the published claims reserves.” S&P credit analyst Adrian Chee indicated that “Thai Re has consistently posted strong operating performance, which is viewed by Standard & Poor’s as one of the company’s key strengths.”

The company’s “operating performance is underpinned by solid underwriting performance and net investment income, while its capitalization is robust relative to the risk underwritten,” the bulletin continued. “Thai Re’s technical performance has been consistently very strong over the past five years, with its combined ratio averaging at about 89 percent, and is among the least volatile when compared with its regional peers. This steady and strong underwriting performance reflects the reinsurer’s prudent underwriting-for-profit policy in addition to its strong market position, and is also assisted by its conservative reserving practice of a LFR, which is strengthened in periods of above-average underwriting profits.

“As at December 2003, Thai Re’s LFR represented a sizeable 36 percent of its total outstanding claims provisions. In 2003, Thai Re’s return on revenue is a strong 15 percent, almost unchanged from 15.8 percent in 2002. Its capitalization, although relatively small nominally, remains robust on a risk-adjusted basis.

“Nevertheless, factors partially offsetting these strengths are the company’s moderate financial flexibility and the relatively less diverse investment market in Thailand. The reinsurer’s financial flexibility is moderate and adequate for the anticipated needs of the company. Despite Thai Re’s previous success in raising capital, the practice of paying high dividends to its wide shareholder base increases the company’s reliance on shareholders to provide fresh funding when necessary.

“In addition, Thai Re’s flexibility to raise additional capital might be compromised when the domestic insurance industry is stressed. After its business restructuring, Thai Re is expected to develop other sources of revenue, such as enhancing its fee-based income by providing data management and product development services to participants in the domestic insurance industry.”

S&P said the “stable outlook reflects the expectation that Thai Re will maintain its sound financial profile and strong market position, underpinned by its long-standing relationships built with the domestic participants. Thai Re’s business mix is not expected to change substantially in the short term, and with the realignment and restructuring of its portfolio finalized, Thai Re is expected to post a moderate gross premium growth in 2004. The reinsurer’s capitalization is expected to remain strong.”

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