Ratings Recap: PVI, PVI Re

May 19, 2014

A.M. Best has upgraded the financial strength rating to ‘B++’ (Good) from ‘B+’ (Good) and issuer credit rating to “bbb” from “bbb-” of Vietnam’s PVI Insurance Corporation, and has revised its outlook on both ratings to stable from positive. Best said the “upgrade reflects PVI Insurance’s improved risk-based capitalization, continuously favorable operating performance, strong presence in the Vietnam non-life insurance market and the support from its shareholders. PVI Insurance continued to strengthen its chartered capital in 2013 according to its business plan, resulting in improvement in its risk-adjusted capitalization. PVI Insurance’s operating performance continues to improve due to its favorable underwriting results and stable investment results. In the near to midterm, the company’s projected profitability and chartered capital increases are expected to support its business growth.” The report also noted that “PVI Insurance is ranked the second-largest direct insurer in Vietnam in terms of gross premium written, with leading market positions in the energy, hull and P&I and property – engineering sectors. Aside from the financial support from PVI Holdings, key shareholders of PVI Holdings—namely Vietnam National Oil & Gas Group (PetroVietnam) and Talanx AG—have allocated experienced experts and provide knowledge transfer, business development and corporate governance support to the management of PVI Insurance.” As offsetting factors Best cited the “large dividend payout to PVI Holdings and Vietnam’s slowing economic growth.” In addition Best pointed out that “a large part of PVI Insurance’s profit is expected to be transferred to PVI Holdings in the next few years, although PVI Insurance is expected to continue receiving additional contributions of share capital from PVI Holdings. Therefore, it is crucial for PVI Insurance to maintain its strong profitability in order to support the growth of its capital base. In addition, the challenging economic environment in Vietnam could place pressure on PVI Insurance’s profitability and business growth.” In conclusion Best said: “PVI Insurance is well positioned at its current rating level. Negative rating actions could occur if the company’s risk-adjusted capitalization declines to a level below Best’s expectations or if its operating performance deteriorates significantly.”

A.M. Best has affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Vietnam’s PVI Reinsurance Joint-stock Corporation (PVI Re), both with a positive outlook. “The ratings reflect PVI Re’s solid risk-adjusted capitalization, favorable operating results and the support from major shareholders of PVI Holdings,” Best explained. “The ratings also acknowledge PVI Re’s well-established profile in the Vietnamese reinsurance market as one of the only two local reinsurers in Vietnam.” Best noted that in “October 2013, PVI Re increased its charter capital to VND 668 billion [$31.68 million] from VND 460 billion [$21.818 million], in line with its business plan. PVI Re’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), was solid as at the end of 2013 and supportive of its current ratings. Given the capital injection plan in the next three years, it is expected that the company’s capital level will be sufficient to support its forecasted business growth in the near term. With an operating history of fewer than three years, PVI Re recorded an operating profit every year since inception. The major shareholders of PVI Holdings—Vietnam National Oil & Gas Group (PetroVietnam or PVN), Talanx AG (Talanx) and Oman Investment Fund (OIF)—support PVI Holdings and its subsidiaries in various areas. PVN provides branding awareness and a client network. Talanx and OIF provide support through accessing into international markets and transferring technical knowledge.” As offsetting factors Best cited “PVI Re’s small capital size as compared to other peer reinsurers in the Asia Pacific region, as well as the competitive landscape of the Vietnamese and regional reinsurance markets.” In conclusion Best said: “Future upward rating actions could occur if PVI Re continues to increase its capital level according to its business plan, strengthen its presence in the Vietnamese reinsurance market and demonstrate the capability to achieve consistently favorable operating performance. Conversely, negative rating actions could occur if the company’s risk-adjusted capitalization declines materially resulting from significant deterioration in operating performance.”

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