SINGAPORE–(BUSINESS WIRE)–AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of PVI Reinsurance Joint-stock Corporation (PVI Re) (Vietnam). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect PVI Re’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM). In addition, PVI Re benefits from rating enhancement from HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI V.a.G. or the HDI group).
The ratings of PVI Re were placed under review with developing implications on 1 July 2021, following an announcement by HDI Global SE that it had partially divested its shareholding in PVI Holdings, the immediate parent of PVI Re, to comply with a regulatory condition imposed by the State Securities Commission of Vietnam. As a result of this shareholding change, the ultimate ownership of PVI Holdings’ total charter capital by HDI V.a.G. fell below 50%; this caused uncertainty over PVI Re’s eligibility to continue receiving rating enhancement from AM Best in respect of its ownership, integration and support from HDI group.
The latest rating actions follow a period of further shareholding changes, which has seen the HDI group regain majority ultimate ownership of PVI Holdings. As a result of this, AM Best continues to afford rating enhancement to PVI Re in respect of its ultimate ownership by and the implicit support from the HDI group. Although PVI Re’s operations account for a small portion of HDI V.a.G.’s overall revenues and earnings, AM Best views the company as being important to the HDI group’s international expansion plans.
PVI Re’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation that remained at the strongest level as of year-end 2020, as measured by Best’s Capital Adequacy Ratio (BCAR). However, capital adequacy is likely to decline over the near term driven by high dividend payouts and increasing capital requirements arising from a projected increase in equity investments and underwriting risks. AM Best views the company’s investment portfolio to be of moderate risk. During the first nine months of 2021, the company has increased its allocation to higher risk assets, including affiliated private investments, although the majority of investments remain allocated to cash and term deposits. Other balance sheet considerations include the company’s high retrocession usage and dependence, and a high dividend payout ratio over recent years.
The company has a track record of reporting strong operating results with a five-year average return-on-equity ratio of 16% (2016-2020). Underwriting performance has shown good stability over time, supported by affiliated domestic business, particularly in the commercial and industrial lines. However, underwriting results are becoming increasingly constrained by acquisition costs, which have been gradually rising over time. Investment income has remained a consistently positive component of overall earnings, although investment yields are likely to be constrained over the near term by low interest rates.
PVI Re’s business profile is assessed as limited. PVI Re is the smaller of two domestic reinsurers in Vietnam. The company generates a significant volume of business from its major cedant and affiliate, PVI Insurance Corporation (PVI Insurance). In addition, AM Best considers PVI Re to have a moderate business concentration to catastrophe-exposed property and engineering lines, which are largely sourced domestically, albeit that catastrophe retrocession is in place to protect against severe modelled events.
AM Best considers the company’s ERM approach as appropriate given the size and complexity of its current operations. Going forward, AM Best expects PVI Re to benefit further from the HDI V.a.G. group’s international product expertise in areas of risk selection, pricing and reserving, as well as its oversight and support in respect of risk management.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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