Hong Kong headquartered Peak Re has reported favourable operating results over the past five years, although the underwriting margin remains thin, partially due to intense market competition and losses arising from multiple catastrophes during the period, notes AM Best.
The company has a track record of strong operating efficiency, as reflected in its stable and lower-than-average management expense ratio. Investment returns from interest and dividend income also have contributed to the overall operating earnings.
The company underwrites a diversified non-life portfolio by product line and geography, with a focus on the Asia-Pacific region. With its life reinsurance business, the company focuses on broadening its revenue, in particular, medical reimbursement products, through active client engagement, product innovation and new channel strategies. The acquisition of Peak Capital Holdings (formerly Lutece Holdings) and its subsidiary Peak Capital (formerly Lutece Investment Management) also contributes to strengthening Peak Re’s franchise in the investment-linked securities (ILS) market, says AM Best.
The international credit rating agency has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Peak Re and its Swiss subsidiary, Peak Reinsurance AG. The outlook of these credit ratings is stable.
The ratings reflect Peak Re’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
Balance sheet strength
Peak Re’s balance sheet strength is underpinned by its robust level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio. The company’s capital and surplus reported a compounded average growth rate of 9.7% during the five-year period from 2015 to 2019, mainly attributable to capital injections from its shareholders and the full retention of earnings. The company also has demonstrated favourable financial flexibility.
In October 2020, the company completed an issuance of perpetual subordinated guaranteed capital securities of $250m. In addition, Peak Re in December 2018 launched Asia’s first sidecar, Lion Rock Re, to provide collateralised retrocession and enhanced underwriting capacity for the company. Peak Re has also renewed and upsized Lion Rock Re in 2019.
Other supportive factors of the balance sheet strength include Peak Re’s prudent investment risk profile, the company’s financial agility in formulating a comprehensive retrocession program and its strong liquidity.
Partially offsetting rating factors include the exposure to severe catastrophe events, upward pressure in retrocession costs and increased capital market volatility, says AM Best. Given the expanded balance sheet from the hybrid capital issuance, AM Best expects Peak Re will continue to uphold a prudent approach toward business expansion and maintain a robust level of risk-adjusted capitalisation, while gradually refining its underwriting and investment portfolios to strengthen its operating performance over the short to intermediate term.
Positive rating actions are unlikely over the near term, says AM Best. Negative rating actions may occur if there is a material deterioration in the company’s risk-adjusted capitalisation, or if there is a deteriorating trend in its operating results. A deterioration in the credit profile of Fosun International Holdings, Peak Re’s major shareholder, may also impose a negative impact on Peak Re’s ratings.