Kathmandu. Global credit rating agency, AM Best, has continued its previous credit rating and issuer rating of Himalayan Reinsurance Limited (Himalayan Re) based on its financial strength.
AM Best has reaffirmed its B+ (Good) credit rating for financial strength (credit rating) and “Triple B-(Minus)” (Good) issuer rating (long-term issuer rating). A press release issued by AM Best stated that the outlook for these credit ratings is stable.
AM Best considers a strong balance sheet with a strong capital base, continued growth and diversification in business, and a strong regulatory framework with investments in guaranteed returns as strengths. In addition, potential changes in regulatory provisions, geographical concentration, limited diversity in risk assessment, and insufficient operating experience are highlighted as challenges.
According to the press release, these ratings reflect Himalayan Rico’s balance sheet strength, which AM Best assesses very intensively. In addition, its adequate operating performance, limited business profile and appropriate enterprise risk management also influenced the rating.
The company’s balance sheet strength is assessed by risk-based capitalization. This assessment was at a strong level in FY2079.80. It is expected to increase to a very strong level and remain above average in FY2024. This is measured by the capital adequacy ratio.
Based on unaudited financial statements supported by the IPO listing in January 2024, shareholder capital funds increased by 194 percent in FY2080.81. The total assets in the fiscal year 2079-80 were Rs 7.9 billion, which has increased to about Rs 15.3 billion in the last fiscal year.
The company has a low to medium risk investment diversification. Most of this is allocated in cash and fixed deposits. The rest is mainly in fixed-income securities and public shares.
AM Best’s view:
AM Best considers the company’s operating performance to be inadequate. Himalayan Relay has consistently generated positive operating income since its inception. Despite the flood event in September 2024, the company is expected to achieve a positive underwriting margin in FY2024. The company’s expense ratio has gradually decreased as the business has expanded. The potential underwriting performance will depend heavily on the company’s ability to source good quality domestic business. Investment returns, primarily from interest income, are expected to remain the key driver of earnings in the medium term.
Himalayan Re’s business profile is rated as limited. Himalayan Re is a domestic reinsurance company, which was established in the Nepal market in July 2021. It has benefited from the mandatory domestic reinsurance related provisions approved in 2022. This includes 8 percent direct cession in the previous fiscal year 2080.81 and a minimum 15 percent share of reinsurance treaties. The company also benefits from a right of first refusal to domestic facultative reinsurance business to domestic reinsurers.
AM Best believes that regulatory support in the early years of the company will be conducive to its strategic growth objectives as it matures. Despite the expected decline in the mandatory domestic reinsurance deductible ratio over time, Himalayan Reco expects regulatory support in the early years of the company to be conducive to its strategic growth objectives as it matures.
AM Best expects the company’s business concentration towards property and engineering risks to remain through underwriting diversification. In addition, while Himalayan Reco emphasizes geographic diversification for underwriting, most of its risk exposure is currently geographically concentrated in Nepal.
