AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of "bbb-" of PGA Sompo Insurance Corporation (PGA Sompo) (Philippines). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect PGA Sompo’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
PGA Sompo’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCR), which AM Best expects to remain at the strongest level over the medium term. The company’s capital adequacy is supported by its very low net underwriting leverage and conservative investment portfolio. Other positive balance sheet considerations include the implicit and explicit support provided by the company’s minority interest shareholder, Sompo Japan Insurance Inc. (Sompo). A partially offsetting balance sheet factor is the company’s small absolute capital base, which AM Best views to increase the sensitivity of risk-adjusted capitalisation to changes in performance and stressed scenarios. As at Dec. 31, 2019, the company’s shareholder equity stood at PHP 1.2 billion (USD 23 million). In addition, PGA Sompo has a very high reinsurance usage and dependence, with over 95% of premiums ceded to reinsurers, albeit with the majority placed with its financially strong shareholder, Sompo.
AM Best assesses PGA Sompo’s operating performance as adequate. The company has achieved consistent operating profitability during the past five years with an average return on equity ratio of 4% (2015-2019). The company has exhibited a volatile combined ratio over the past five years, although the impact on overall earnings is limited by the company’s very low premium retention ratio. Underwriting results over this period were driven by reinsurance commission income generated on ceded business, with higher commissions in recent years having supported improved results. Investment income has remained a positive contributor to operating profits, with a five-year average net investment return (including gains and losses) of 2% (2015-2019). Prospectively, AM Best expects underwriting performance to contribute positively to operating results, but remain volatile due to the small net premium base. Investment results are anticipated to be a more stable component of overall earnings over the medium term.
AM Best views PGA Sompo’s business profile as limited. Despite the company benefiting from its affiliation with Sompo, which supports strong access to Japan-related risks in the Philippines, PGA Sompo is considered a small-sized non-life insurer. Based on gross written premium, the company had a domestic market share of 2% in 2019, ranking it 13th out of 58 insurers. As the company’s business model sees it cede out almost all of its risks, its net premium base accounts for a fraction of market-wide retained premium in the Philippines. In addition, the company’s underwriting portfolio is considered concentrated by line of business and geography.
AM Best considers the company’s ERM approach as appropriate given the size and complexity of its current operations. PGA Sompo also is viewed to benefit from a level of risk management oversight and support from the Sompo group.
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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