A.M. Best Co. announced that it has affirmed the financial strength rating of “B+” (Very Good) and the issuer credit rating of “bbb-” of Poland’s Polskie Towarzystwo Reasekuracji S.A. (Polish Re) with a stable outlook.
“The ratings reflect the good current and prospective risk-adjusted capitalisation and improved investment returns, which are offset by deteriorating technical results and continuing high reliance on premiums ceded by Polskie Towarzystwo Ubezpieczen S.A. (PTU),” said Best.
Best indicated it “believes that Polish Re’s risk-adjusted capitalisation is expected to remain good over the next two years, with a projected improvement of the absolute capital base in 2005 due to the forecasted retention of net profits after dividend. In 2005, the company is likely to distribute a dividend of approximately 30 percent-40 percent of after-tax profits to its shareholders.” It also expects the reinsurer’s investment yield to be within the 4 to 4.5 percent range, “benefiting from a shift in investment strategy from cash toward domestic treasury bonds and fixed interest securities.”
However, Best also noted that it “believes that the technical results are likely to deteriorate in 2005 and 2006 as a result of the likely negative effects of the current softening market conditions on the loss and acquisition expense ratios.” Best sees the combined ratio deteriorating over the next two years to approximately 104 percent compared to 99.2 percent in 2004. Therefore, Best added, “Polish Re’s net profits are likely to become heavily reliant upon investment returns to offset technical losses in 2005 and 2006.” Best said it also remains concerned about Polish Re’s excessive reliance upon business ceded by PTU of approximately 45 percent that is not likely to decrease in 2005.
The rating agency concluded that it will “closely monitor developments regarding recent changes to Polish Re’s senior management team and any changes to its strategic objectives as these may exert pressure on its ratings. The changes in the management team were triggered by the Insurance and Pension Funds Supervisory Commission (KNUiFE).”
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