Thai Reinsurance Public Company (THRE) is expected to show a more stable underwriting performance in 2024, with the combined ratio maintained below 100%, says Fitch Ratings.
Business growth is likely to be driven by the accident and health line as well as conventional business in a hard market. The combined ratio stood at 98% in 9M23, improved from 112% in 9M22. This was due to the absence of COVID-19-related health policies in 2023.
Fitch expects THRE’s return on equity (ROE) to improve slightly from 2023, stabilising at around 4%-6%. Annualised ROE was 5% in 9M23, against -9% in 9M22.
Fitch also believes the reinsurer will remain selective and retain tight underwriting terms and conditions, with inflationary pressure on claims to be offset by premium adjustments.
Ratings affirmed
Fitch has affirmed THRE’s Insurer Financial Strength (IFS) Rating at ‘A-‘ (Strong). The outlook is ‘Stable’. The affirmation reflects THRE’s ‘Strong’ capitalisation, ‘Favourable’ company profile and Fitch’s expectation of steady earnings from 2024.
Apart from underwriting results, other major rating drivers include:
Solid Capitalisation: Fitch’s Prism Model estimate places THRE in the ‘Extremely Strong’ category with an extensive buffer, supported by a recovery in earnings from pandemic-related policies in 2023. Fitch expects this to be sustained in 2024.
THRE’s risk-based capital (RBC) ratio stood at 338% at end-September 2023, against 364% at end-2022 (2021: 275%), and was significantly above the regulatory requirement of 140%.
‘Favourable’ Company Profile: Fitch assesses THRE’s company profile as ‘Favourable’, based on a ‘Favourable’ business profile and ‘Moderate/Favourable’ corporate governance. The assessment is underpinned by THRE’s unique position as Thailand’s only local non-life reinsurer, consistently capturing 30%-40% of local ceded premiums, despite its small operating scale. THRE’s business strength lies in its well-diversified portfolio and capability to cater for non-conventional business lines.
Investment Shift for Better Returns: THRE’s asset management strategy has been conservative, but Fitch believes the reinsurer will increase its exposure to risky assets, including equity investments, for higher investment yields in 2024. Cash, deposits and fixed-income instruments comprised more than 80% of its total invested assets, with a Fitch-calculated risky assets ratio of around 35% at end-September 2023, well below Fitch’s criteria guidelines for the ‘A’ IFS category.
