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Investing.com -- AM Best, the credit rating agency, has confirmed the Financial Strength Rating (FSR) of B++ (Good), the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” (Good), and the Vietnam National Scale Rating (NSR) of aaa.VN (Exceptional) for Hanoi Reinsurance Joint-Stock Corporation (Hanoi Re). The company’s FSR and NSR maintain a stable outlook, while the Long-Term ICR outlook is positive.
The ratings are a reflection of Hanoi Re’s strong balance sheet and robust operating performance, despite its limited business profile and adequate enterprise risk management. The ratings also consider the support from Hanoi Re’s ultimate parent company, HDI Haftpflichtverband der Deutschen Industrie V.a.G.
The positive outlook for the Long-Term ICR is due to the company’s improving balance sheet fundamentals. Hanoi Re’s capital adequacy has significantly improved since a capital injection in 2023, although it has been historically volatile due to high dividend payouts and capital requirements from business growth. The company’s risk-adjusted capitalization, measured by Best’s Capital Adequacy Ratio (BCAR), was at its strongest level at the end of 2024 and is projected to maintain this level over the medium term.
Hanoi Re’s investment portfolio, mainly composed of cash and term deposits, with the remainder in non-rated corporate bonds and affiliated private equity investments, is considered to be of moderate-to-high risk. The company’s exposure to catastrophe modeling risk, specifically inadequate retrocession protection for Typhoon Yagi, is an offsetting factor to its balance sheet strength assessment.
The company’s strong operating performance is backed by its five-year average return-on-equity ratio of 14.2% (2020-2024). Despite incurring an underwriting loss in 2024 due to Typhoon Yagi losses, Hanoi Re continued to report operating profits in the same year, largely due to favorable investment income. However, technical margins have thinned in recent years due to increases in net commission expenses, and the expense ratio is expected to remain high over the medium term. Investment returns, primarily from interest and dividend income, are expected to continue to be a key contributor to the company’s overall earnings.
Hanoi Re is one of two domestic reinsurers in Vietnam, with a substantial portion of its business coming from its affiliated company, PVI Insurance Corporation. The company has a moderate underwriting risk due to its significant exposure to catastrophe-exposed property and engineering lines, although potential losses are somewhat mitigated by catastrophe retrocession.
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