Moody’s changes Peak Re’s outlook to stable from negative

Moody’s has changed the outlook of Peak Reinsurance Company Ltd. to stable from negative along with affirming the firm’s insurance financial strength rating (IFSR) as Baa1.

The outlook change is attributed to Moody’s view that contagion risk from the reinsurer’s majority shareholder Fosun International Limited, particularly in the form of strain on business growth and financial flexibility, has not materialized and is unlikely to increase meaningfully over the next year and half.

Peak Re remains under strong regulatory oversight from the Insurance Authority of Hong Kong, and despite ultimately owning an 87% stake, Fosun does not have majority control of Peak Re’s board of directors, which allows the reinsurer to operate independently, says Moody’s.

Moody’s has also affirmed the Baa3 (hyb) backed subordinated debt rating of the subordinated perpetual securities issued by Peak Re (BVI) Holding Limited. Peak Re irrevocably and unconditionally guarantees these securities.

The ratings agency also notes that Peak Re has a stringent related-party transaction policy in place, which has proven to be effective and is key to safeguarding the reinsurer’s financial resources. The ratings affirmation mainly reflects Peak Re’s sound a3 standalone credit profile along with the reinsurer’s good franchise in the Asian reinsurance market, solid capitalization, expanding product and geographic diversification.

However, Fosun’s high debt leverage and weak liquidity could strain Peak Re’s financial flexibility, warns Moody’s.

Fosun also has a complex organizational structure and is exposed to credit contagion risk from some of its weak subsidiaries. As such, Moody’s positions Peak Re’s Baa1 rating one notch below its a3 standalone credit profile to reflect that Fosun remains the majority shareholder, while Fosun’s credit profile is significantly weaker.

Moody’s further explained, “The reinsurer’s strong understanding of core markets dynamics and local networks remains its competitive advantage in securing long-term client relationships. Solid primary insurance growth prospects in Asia will also likely support its business growth over the next 3-5 years.

“Peak Re’s capitalization is solid compared with its underwriting risk because of its strong share capital and retained earnings since its establishment. Since 2023, the reinsurer has also taken steps to improve its risk-based capitalization by reducing its catastrophe exposure and reallocating capital to lower-risk investments, particularly treasury bonds. Moody’s expects the reinsurer’s capitalization to remain solid upon the implementation of risk-based capital (RBC) regime in 2024.”

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