Moody's Ratings has affirmed the Baa1 insurance financial strength rating (IFSR) on Peak Re.
Moody’s also affirmed the Baa3 (hyb) backed subordinated debt rating of the subordinated perpetual securities issued by Peak Re (BVI) Holding Limited. These securities are irrevocably and unconditionally guaranteed by Peak Re.
Moody’s said that the change in outlook to positive from stable reflected its view that the contagion risk from Peak Re's majority shareholder - Fosun International Limited - is declining, particularly in the form of strain on business growth and financial flexibility. “We expect the contagion risk will continue to decline in the next 12 months because of the reinsurer’s effective ring-fencing measures,” said Moody’s.
The rating affirmation mainly reflects Peak Re’s sound a3 standalone credit profile, which is underpinned by the reinsurer's good franchise in the Asian reinsurance market, solid capitalisation and expanding product and geographic diversification. These strengths are offset by Fosun's high debt leverage and weak liquidity, and Peak Re's exposure to losses from natural disasters. Peak Re's Baa1 IFSR is currently one notch below its a3 standalone credit profile to reflect the contagion risk from Fosun's significantly weaker credit profile.
The rating action also considers Peak Re’s consistent improvement in profitability and capitalization. Moreover, Fosun's significantly weaker credit profile has had very limited impact on the reinsurer's business growth, its access to capital market and retrocession protection.
Moody’s expect that the reinsurer's underwriting profitability will continue to improve in 2024 compared to 2023 and remain solid over the next 12-18 months. The reinsurer's P&C combined ratio stood at 87% in 2023. Its strong underwriting results have benefitted and will continue to benefit from prudent underwriting, favourable terms and conditions for reinsurers. The declining but still high interest rates will support recurring investment income. Its solid profitability will also support the reinsurer in maintaining a solid capitalisation in the next 12 months.