THE NATIONAL Reinsurance Corporation of the Philippines (Nat Re) has obtained a “PRS A” financial strength rating with a “stable” outlook from local debt watcher Philippine Rating Services Corp. (PhilRatings).

In a statement on Monday, the country’s sole local reinsurer said its latest rating indicates the company’s “strong financial security” while a “stable” outlook meant this may be maintained in the next 12 months.

PhilRatings took into account the company’s solid market franchise, its shareholders, the company’s management, and sound investment portfolio.

Nat Re, however, remains more vulnerable to potential adverse business conditions compared to other insurance companies with a higher rating, PhilRatings said.

“Nat Re has a unique advantage granted by the law, which is that of being entitled to take up a minimum 10% share of all the outward reinsurance business of domestic insurance companies, and which would otherwise be ceded abroad,” the local debt watcher said.

“This gives Nat Re significant access to domestic reinsurers’ business, and also a broader view of their reinsurance requirements,” it added.

PhilRatings also cited how Nat Re completed the Oasis Platform for Climate and Catastrophe Risk Assessment in Asia, or the Oasis project. The project developed the first open-access catastrophe model for floods in the country.

Nat Re is also part of the East Asian Insurance Congress (EAIC), the ASEAN Reinsurance Working Committee, and an active member of the Philippine Insurers and Reinsurers Association. In 2021, Allan R. Santos, Nat Re’s chief executive officer, was appointed president of EAIC.

“PhilRatings notes that the Company’s active involvement in these organizations puts it in a good position to achieve its long-term vision of being a recognized partner in other emerging markets in Asia,” it said.

State-owned Government Service Insurance System is its biggest shareholder with a 25.7% stake in the firm.

Other major shareholders of Nat Re include Bank of the Philippine Islands and MICO Equities, Inc. with 13.7% and 12.9%, respectively.

Nat Re’s total investment portfolio was made up of 83.2% and 83.6% low-risk fixed income investments as of end-2021 and end-March, respectively. These fixed-income investments included corporate bonds, government bonds, Treasury bills, and short-term investments.

Meanwhile, equity securities accounted for 16.8% and 16.4% of Nat Re’s total investment portfolio as of end-2021 and end-March, respectively. Equity securities consisted mainly of shares of stocks in companies listed on the Philippine Stock Exchange.

Nat Re had P9.1 billion in investment assets, as of end-March 2022.

With a net worth of P5.7 billion as of March 31, Nat Re was ahead of the regulatory deadline for a minimum net worth of P3 billion by end-2022.

“Notwithstanding its sound investment portfolio and more than adequate capital, Nat Re has been facing a number of external headwinds. Over the last three to five years, the industry has seen that growth in catastrophe losses has outpaced the growth in premium rates,” PhilRatings said.

“The foregoing was also evident in the Company’s loss experience in 2021 and in the first half of 2022. To mitigate the potential impact of higher catastrophe losses on the Company’s performance moving forward, Nat Re seeks to lower the volatility in its loss experience by gradually revising its business mix,” it added.

PhilRatings also cited high inflation and rising interest rates as challenges that might weigh down Nat Re’s performance.

“While such will improve the yield of the Company’s overall portfolio in the medium- to long-term, it adversely affected the present value of the Company’s investment assets as of end-June 2022,” it said.

Nat Re recognized an P84.8-million impairment loss on its available-for-sale equity securities in the first six months of the year. It also saw a fair value loss on its held-for-trading equity securities amounting to P24.8 million.

“While the Company has taken the necessary steps to mitigate the risks associated with the abovementioned challenges, these factors may continue to affect the Company’s performance in the short- to medium-term,” PhilRatings said. — Keisha B. Ta-asan