ENP Newswire - 16 June 2014
Release date- 13062014 - A.M. Best has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of 'bbb-' of Milli Reasurans Turk Anonim Sirketi (Milli Re) (Turkey).
The outlook for both ratings remains negative.
The ratings of Milli Re reflect its excellent franchise in the Turkish market and solid operating performance. The negative outlook reflects the sustained deterioration in Milli Re's consolidated risk-adjusted capitalisation and consistently weak technical performance.
Milli Re maintains an excellent domestic franchise in the Turkish market through its reinsurance operations and its direct insurance subsidiary, Anadolu Anonim Turk Sigorta Sirketi (Anadolu), which is the market leader in primary insurance.
In 2013, Milli Re produced solid operating results, as demonstrated by the consolidated return on equity of 17%. However, the company is dependent upon investment income to offset weak underwriting results. Milli Re's technical performance declined on a stand-alone basis in 2013, reporting a combined ratio of 115% (2012: 108%), despite efforts in recent years to focus on profitable business segments. Consolidated underwriting results improved, but remained unprofitable in 2013, producing a technical loss of TRY 33 million (USD 15 million), compared with a loss of TRY 250 million (USD 140 million) in 2012. The improved performance was driven by Anadolu, which reported a solid combined ratio of 95% in 2013.
Milli Re's consolidated risk-adjusted capitalisation weakened in 2013, but remains supportive of the current rating level. Despite full earnings retention, the reduction in capital adequacy was mainly driven by higher underwriting leverage and increased credit risks. On a consolidated basis, A.M. Best remains uncertain as to Milli Re's ability to maintain capital at an adequate level to support its growth strategy.
Positive rating actions could occur if there were to be a material increase in Milli Re's consolidated capital adequacy, coupled with a significant improvement in its technical performance. Negative rating actions could result from further deterioration in Milli Re's consolidated risk-adjusted capitalisation to a level not supportive of its current ratings. A decline in technical results could also lead to a rating downgrade.
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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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