Kathmandu: Credit rating agency ICRA Nepal has reaffirmed Nepal Reinsurance Company’s (NRIC) credit rating. ICRA has reassigned ‘[ICRANP-IR] AA-‘ rating.
‘The rating reaffirmation continues to factor in NRIC’s strong ownership profile with a ~44% stake by the Government of Nepal (GoN). The rating also factors in the company’s strong solvency profile (3.26 times for FY2022) and liquidity, adequate retrocession arrangement, and its strong reinsurance partners, which remains a comfort against any near to medium-term probable obligations.’
However, the rating remains constrained by NRIC’s limited track record of operations (operating since November 2014). While the company’s conservative risk retention policy and strong retrocession cover offer comfort, its ability to honor its obligations arising from major events/catastrophes remains untested so far. Rating concerns also arise from NRIC’s significant dependence on domestic general insurers (79% of FY2022 gross premium was sourced from domestic general insurers) and the gradual moderation in the underwriting profits (rising combined ratio) of domestic general insurers which is, therefore, likely to put pressure on the underwriting profitability of NRIC as well. NRIC also remains exposed to regulatory changes.
Moreover, with over 94% of its business sourced from Nepalese insurers, the company remains exposed to the geographical concentration risk; albeit partly mitigated by adequate reinsurance coverage, including catastrophic coverage taken by the company. The rating also remains constrained by the expected competitive pressure from newly established private sector domestic reinsurance companies as well as other established foreign reinsurers offering their services in Nepal.
As per the circulars released by the Nepal Insurance Authority in May 2022, domestic insurers have to directly cede 10% of their business each to the two domestic reinsurers viz. NRIC and Himalayan Reinsurance Limited; in addition to setting aside 15% of the treaty share in reinsurance each to the domestic reinsurers till FY2023. For FY2024 and onwards the proportion of direct cession is to be progressively lowered by 2% every year while for treaty reinsurance the share for both domestic reinsurers is to be increased to 20% each.
