AM Best revises Peak Re’s outlook to stable

Hong Kong-domiciled reinsurer, Peak Reinsurance Company Limited’s outlook has been revised to stable from negative by ratings agency AM Best.

The revision is driven by the agency’s view of Peak Re’s ultimate parent, Fosun’s stabilised credit condition and the subdued likelihood of a potential adverse credit event at the company, which may expose Peak Re to contagion risk over the short to intermediate term.

However, AM Best does note that Peak Re has demonstrated a track record of effective mitigation of potential contagion risk stemming from Fosun’s weaker credit fundamentals and can maintain its financial strength.

AM Best has also affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” (Excellent) of Peak Re and its subsidiary, Peak Reinsurance AG, Switzerland.

The ratings reflect Peak Re’s very strong balance sheet strength, adequate operating performance, neutral business profile, appropriate enterprise risk management, and neutral impact from Fosun.

AM Best noted that Fosun’s reported financial leverage has been declining over the last few years as it continues to adjust its investment portfolio and manage its debt profile. Despite volatile market conditions, the firm has demonstrated access to funding and has received bank support to partially mitigate liquidity and refinancing risks.

Peak Re’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is projected to remain at the strongest level over the short to intermediate term. The reinsurer’s capital and surplus increased by 14.3% to $1.3 billion at year-end 2023, mainly supported by a strong rebound in operating earnings and favourable changes in investment valuations.

In addition, Peak Re also has good financial flexibility in accessing traditional and alternative capital markets, an overall prudent investment risk profile, a comprehensive retrocession programme and strong liquidity.

Under the new accounting basis, Peak Re’s net profit reached a record level of $200 million in 2023, supported by improvements in reinsurance service results and investment performance.

AM Best added, “It has continued restructuring its non-life underwriting portfolio to improve technical margins and rein in its catastrophe exposure. The IFRS 17 non-life combined ratio strengthened significantly in 2023 due to lower catastrophe losses.

“The life reinsurance business has achieved solid growth over the last few years and continues to offer business and capital diversification. Investment yield improved significantly in 2023, supported by favourable changes in investment fair values, while the company continues to de-risk its investment portfolio by increasing the proportion of high-quality fixed-income securities and reducing exposure to equities. The company continues to maintain a lean and efficient operational model.”

Peak Re’s non-life portfolio is diversified by product lines and geography, focused on the Asia-Pacific region. It continues to expand its traditional risk business in the life segment, focusing on health products including medical and critical illness in China. Additionally, it has been building its market presence by offering structured reinsurance solutions to clients for capital efficiency purposes.

AM Best will continue to monitor Peak Re’s future actions to update its ratings.

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