LONDON--(BUSINESS WIRE)-- A.M. Best Europe – Rating Services Limited has downgraded the financial strength rating to B+ (Good) from B++ (Good) and the issuer credit rating to “bbb-”from “bbb” of Milli Reasurans Turk Anonim Sirketi (Milli Re) (Turkey). The ratings remain under review with negative implications.
A.M. Best has downgraded Milli Re’s ratings based on a full assessment of its capital position following large losses in 2011, which occurred as a result of catastrophic events, the ongoing poor performance of some local business lines, a change in reserving methodology and the fair value revaluation of its subsidiary, Anadolu Anonim Turk Sigorta Sirketi. These events drove Milli Re’s unconsolidated total capital and surplus down 43% to TRY 461.6 million at year-end 2011 (USD 240 million). Milli Re’s capitalisation improved in the first-half of 2012, with total capital and surplus growing to approximately TRY 565 million (USD 295 million). With A.M. Best giving full credit for hidden reserves in the company’s property portfolio, Milli Re’s risk-adjusted capital on an unconsolidated basis is considered to be adequate. However, on a consolidated basis, Milli Re’s risk-adjusted capital position is significantly weaker, and as such, A.M. Best has maintained the under review status for the ratings.
In addition to A.M. Best’s assessment of Milli Re’s capitalisation, the ratings also reflect its excellent domestic profile, historically poor technical performance, potential risk management weaknesses and the country risk associated with Turkey.
Established in 1929, Milli Re is Turkey’s sole local reinsurer, with a capacity to fulfill approximately 25% of the country’s reinsurance needs. In A.M. Best’s opinion, Milli Re is uniquely placed in the market and enjoys a sound domestic franchise. However, intensive competition in the Turkish reinsurance markets remains a key driver of Milli Re’s poor technical profits. Catastrophic losses in 2011 also contributed to the company’s very poor combined ratio, which even allowing for the effect of the change in reserving methodology rose to circa 125%. Whilst A.M. Best views Milli Re’s poor technical performance in 2011 as potential signal of risk management weaknesses, A.M. Best acknowledges the steps taken by management to tighten underwriting controls and improve technical profitability in 2012. These include the withdrawal from the Turkish health business, substantially scaling back its involvement in the Turkish motor business and the pruning of its international portfolio, which subsequently is expected to drive a reduction in the company’s gross written premiums for 2012.
The ratings of Milli Re incorporate the perceived risk associated with operating within Turkey. A.M. Best assigned a country risk tier of four to Turkey due to its high political and financial system risks and moderate economic risk.
Milli Re’s ratings are likely to be further downgraded in the event that its consolidated risk-adjusted capital position does not improve in the next four to six months. Positive actions on Milli Re’s ratings are likely to be driven by improvements in its technical performance, risk-adjusted capitalisation and risk management.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: “Understanding Universal BCAR”; “Catastrophe Analysis in A.M. Best Ratings”; “BCAR for Life/Health Insurers”; “Rating Members of Insurance Groups”; and “Assessing Country Risk”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
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